The US SEC probes into American CryptoFed

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Key takeaways:

  • American CryptoFed is prohibited by the US SEC from registering algorithmic stablecoins and stabilising assets.
  • According to allegations, the American CryptoFed DAO did not fully disclose to the SEC the details of its operations, management, and financial standing.

The first DAO officially recognised in the US, American CryptoFed DAO, has been subject to an administrative proceeding by the US Securities and Exchange Commission (SEC) for allegedly selling unauthorised security tokens, the Ducat and the Locke tokens.

The American CryptoFed DAO, the first DAO to receive legal recognition in the US, faces the possibility of having its registration revoked after the US Securities and Exchange Commission (SEC) discovered irregularities in the Form S-1 registration statement dated September 17, 2021.

The SEC stated in a declaration released on Friday that the regulator wanted to evaluate whether a stop order must be granted to revoke the enrollment of the proposal and sale of two crypto assets, the Ducat token and the Locke token.

While Locke is a government token produced by American CryptoFed, Ducat token is an algorithmic stablecoin.

According to David Hirsch, Chief of the Crypto Assets and Cyber Unit of the Enforcement Division, “An Issuer pursuing to enrol the offer and sale of Crypto Assets as Securities Transactions must furnish the Required Disclosure Information to the SEC.” 

In addition to not complying with the federal securities laws’ disclosure rules, American CryptoFed asserted that the securities transactions they sought to register were not, in conclusion, securities transactions at all.

The American CryptoFed litigation is inaccurate in how it refers to the tokens as securities, according to the SEC, and encompasses “misleading statements and omissions.”

The regulator curtailed the registration of the two tokens in November of last year, claiming that the DAO had withheld information regarding its “business, management, and economic circumstances.” Financial statement audits were among them.

The American CryptoFed DAO ceased to cooperate with the SEC during the examination, which was the SEC’s most important observation. As a result, the American CryptoFed DAO’s planned business implementation will be stopped by the United States SEC.

According to COO Xiaomeng Zhou, the American CryptoFed DAO’s Form S-1 is therefore covered by Sections (a) and 8(b) of the Securities Act of 1933. 

The Securities Act of 1933’s Section 8(b) only permits the SEC to release a Refusal Order to provide American CryptoFed DAO with additional, clear instructions on how to complete the Form S-1 registration, not a Stop Order.

Recently, the US SEC accelerated its administrative investigations into cryptocurrency companies that were selling unregistered security tokens. The SEC has advanced significantly under the leadership of Gary Gensler, who has a solid background in blockchain technology.

The US Securities and Commission (SEC) has recently tightened its oversight of Web3 companies. According to reports, the SEC has now subpoenaed influencers who were discovered endorsing cryptocurrency projects like HEX, Pulsechain, and PulseX.

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Aadrika Sharma
Aadrika Sharma

I enjoy writing and try to learn new things every passing day!

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