Disclaimer: The article has been updated based on an official response from the American CryptoFed DAO. COO Xiaomeng Zhou explained why the SEC is not legally allowed to issue a shutdown order.
American CryptoFed DAO, the first Decentralized Autonomous Organization (DAO) to gain legal recognition in the United States, faces losing its registration after the United States Securities and Exchange Commission (SEC) discovered discrepancies in the declaration of registration of Form S-1 dated September 17, 2021.
The Wyoming Secretary of State’s Office recognized American CryptoFed as a legal entity in July 2021, at a time when the organization’s CEO, Marian Orr, believed that “Wyoming is arguably the premier blockchain jurisdiction in the world.” world “.
However, on November 18, 2022, the SEC commenced administrative proceedings against the DAO to determine the issuance of a halt order. A halt order from the SEC would retract American CryptoFed’s registration and prevent in-house, Ducat and Locke token sales.
According to the SEC’s Division Of Enforcement, the Form S-1 registration statement filed by American CryptoFed lacks vital information such as audited financial statements and details about its operations and management. The SEC further found that CryptoFed’s U.S. filing contained “misleading statements and omissions” while being inconsistent in describing the tokens as securities.
In this regard, David Hirsch, Head of the Crypto and Cyber Assets Unit of the Law Enforcement Division, stated that:
“American CryptoFed not only failed to comply with the disclosure requirements of federal securities laws, but it also claimed that the securities transactions they seek to record are in fact not securities transactions at all. “
Hirsch clarified that issuers must provide the required information to the SEC. However, the SEC asserted the non-cooperation of the American CryptoFed during its review of its registration statement.
Based on publicly available information, Hirsch shared the SEC’s intent regarding the DAO:
“The Law Enforcement Division is seeking to halt the registration of American CryptoFed to protect investors from misleading information.”
Speaking to Cointelegraph, CryptoFed COO and U.S. Organizer Xiaomeng Zhou objected to the SEC’s claims, saying the Section 8(d) order can only apply to effective registration statements. To the extent that the Section 8(d) order is applied to the registration statement, which “is pending and not yet effective”, it is applied to the wrong object and is unlawful because ” the effectiveness of the registration statement” has not yet existed and the order under Article 8(d) cannot stop the subject that does not exist, Zhou explained.
For the American CryptoFed DAO Form S-1 registration statement that “is pending and not yet effective”, this is a subject of the Section 8 denial order (b) the Securities Act 1933 which clearly states that “the Commission may, […] make an order before the effective date of registration refusing to permit this declaration to be effective until amended in accordance with such order.
As a result, the American CryptoFed DAO Form S-1 is subject to Section (a) and Section 8(b) of the Securities Act of 1933, according to Zhou. He added:
“Section 8(b) of the Securities Act of 1933 only authorizes the SEC to issue a denial order to provide additional clear direction to American CryptoFed DAO to complete the Form S-1 record (and not the stop order).”
Zhou reiterated that Section 8(b) of the Securities Act of 1933 allows the SEC to issue a denial order and provide clear instructions for completing the S-1 registration form. However, this does not allow the federal agency to issue a stop order:
“As a result, the SEC abused the Securities Act of 1933 to unlawfully delay, stop, and obstruct the lawful disclosure of American CryptoFed DAO via the Form S-1 registration statement.”
Cointelegraph has discovered that the official DAO Telegram channel has been deactivated.
However, the deletion of the Telegram account was not yet linked to the SEC investigation at the time of writing.
Related: US National Crypto Laws Should Look Like New York’s, Says State Regulator
The Bahamas Securities Commission (SCB) recently ordered the transfer of all digital assets from FTX Digital Markets (FDM) to a commission-owned digital wallet.
The Bahamas Securities Commission assumes control of the assets of FTX Digital Markets Ltd. pic.twitter.com/IzW4PGZSJm
— Bahamas Securities Commission (@SCBgov_bs) November 18, 2022
The assets were seized “for safekeeping,” according to an official statement shared by SCB.
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