SEC suspends token registration process for Wyoming-based CryptoFed DAO

The United States Securities and Exchange Commission (SEC) is against a decentralized autonomous organization (DAO) based in Wyoming and associated tokens under the plan.

American CryptoFed DAO LLC, which claims to be Wyoming’s first DAO, is struggling to register its tokens with the SEC. Wyoming passed controversial law earlier this year that allows DAOs to comply with state regulations and be recognized as limited liability companies.

CryptoFed has Submit S-1 filed with the SEC in September this year and officially applied for federal recognition. During this process, they tried to register two tokens, Locke and Ducat. The team registered to use these tokens in the secondary market and the auction was refunded with sales that exceeded their original value. Functionally, the Locke token is intended for governance decisions, while the Ducat token is intended for typical transactions.

In the notice of proceedings, the SEC stated that the registration process will be discontinued, taking into account “the effectiveness of the company’s registration of two digital tokens as securities”.

At the time of filing S-1, the DAO operators stated that Locke and Ducat were not securities and would need to be registered with the agency as utility tokens. Until the filing takes effect, CryptoFed intends to distribute tokens but limit their trading and transfer.

Registration followed the principles set out in Commissioner Hester Peirce’s latest draft proposal. Safe Harbor Token (Safe haven). However, the SEC has not officially endorsed this path and remains a recommendation rather than a guideline.

However, on September 16, CryptoFed filed Form 10 in relation to tokens – a common form for registering securities.

“Enforcement claims that Form 10 does not contain certain required information about the two tokens and about American CryptoFed’s business, management and financial status, including audited financial statements.”

It was also found that Form 10 contained an “inconsistent statement” as to whether Ducat and Locke were securities. The SEC also said that the DAO’s intention to distribute tokens on a separate form – Form S-8, which is used to register securities offered through employee benefit plans – has been misunderstood because the DAO did not disclose that their Locke token could not be legally distributed despite filing.

“American CryptoFed has pending registration of Locke and Ducat until an administrative judge’s decision is rejected or suspended,” the SEC concluded.

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