Digital Token Registrations Shut Down by SEC

The US Securities and Exchange Commission (SEC) has filed administrative proceedings against a Wyoming-based decentralized autonomous organization (DAO) to stop the firm from registering two digital tokens as securities.

The SEC alleges that American CryptoFed filed a materially deficient and misleading registration form in an attempt to register as equity securities two digital tokens known as the “Ducat” and “Locke” tokens.

The regulator’s enforcement division alleges that American CryptoFed’s Form 10 registration failed to contain required information about the two tokens, as well as about the company’s business, management, and financial conditions, including audited financial statements.

The form also allegedly contained inconsistent statements about whether the Ducat and Locke tokens are securities, as well as American CryptoFed’s intention to distribute its Locke tokens to the public. The SEC said the company used a Form S-8, which is used for securities offered to employees through employee benefit plans, without disclosing that the Locke tokens may not legally be distributed pursuant to a Form S-8.

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According to the SEC’s complaint, staff from its Division of Corporation Finance spoke with American CryptoFed representatives on Oct. 4 and explained that the Form 10 was materially deficient. They suggested that the company amend the form to correct the deficiencies or consider withdrawing it. Two days later, according to the complaint, American CryptoFed filed a document that purported to be an amended Form 10 asserting that the Ducat and Locke tokens were not securities.

“The amendment did not address any of the identified material deficiencies,” said the SEC.

The SEC said in a letter to American CryptoFed that the form stated throughout that the Ducat and Locke tokens were not securities; however this was inconsistent with a cover page statement identifying the Ducat and Locke tokens as securities to be registered pursuant to Section 12(g) of the Exchange Act.

“Issuers attempting to raise money from the public must provide the information necessary for investors to make informed decisions,” Kristina Littman, chief of the SEC Enforcement Division’s Cyber Unit, said in a statement. “We allege American CryptoFed made materially misleading statements and failed to provide legally required information in its registration form.”

The administrative proceedings are intended to determine whether to deny or suspend the effective date of American CryptoFed’s registration of the Ducat and Locke tokens in order to protect investors. The firm’s registration of the two tokens is stayed until an administrative law judge makes a decision.

In 2019, the SEC’s Office of Investor Education and Advocacy issued an investor alert warning investors to be wary of claims that the SEC has approved offerings. The agency cited situations in which initial coin offering (ICO) sponsors touted SEC forms and filings as indications that the investment has been “approved” by the SEC. The regulator cautioned that just because a company makes a filing on its database does not mean it has been approved.

American CryptoFed was launched in July by California-based software firm mSHIFT Inc. The company did not respond to a request for comment on this story.

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Tags: American CryptoFed, cryptocurrency digital token, DAO, decentralized autonomous organization, Ducat, Locke, registration, SEC, Securities Exchange Commission

Social medial giant Facebook is being sued for securities fraud over allegedly misleading statements that wiped out more than $100 billion in shareholder value, according to a lawsuit filed on behalf of the Ohio Public Employees Retirement System (OPERS) by state Attorney General Dave Yost.

The lawsuit accuses Facebook of “an egregious breach of public trust” and says it “knowingly exploited its most vulnerable users—including children throughout the world—in order to drive corporate profits.”

The lawsuit centers on the information provided to the public by whistleblower Frances Haugen, a former Facebook data scientist who leaked thousands of internal documents indicating that the social media company knew its platforms harmed its users, “especially children,” according to the complaint.

“Those documents show that the defendants were acutely aware that the products and systems central to Facebook’s business are riddled with flaws that sow dissention, facilitate illegal activity and violent extremism, and cause significant harm to users,” the lawsuit said. “But Facebook lacks the will or ability to correct them.”

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The complaint claims that Haugen’s accusations, which were published in a Wall Street Journal report beginning in September, devalued Facebook’s stock by $54.08 per share, causing OPERS and other Facebook investors to lose more than $100 billion.

From April 29 through Oct. 21, Facebook and its senior executives allegedly purposely misled the public about the negative effects its products have on children, and the steps the company has taken to protect the public, thus violating federal securities laws, the complaint said. The lawsuit also said that Facebook CEO Mark Zuckerberg and other company officials knew they were making false statements regarding the safety, security, and privacy of its platforms. The complaint cites Facebook’s admission in one of the internal documents that “we are not actually doing what we say we do publicly.”

In addition to seeking to recover the lost value to the fund, the lawsuit is demanding that the company make significant reforms to ensure it does not mislead the public about its internal practices. Yost said he plans to ask the court by Dec. 27 to appoint OPERS as the lead plaintiff in the lawsuit.

“Facebook said it was looking out for our children and weeding out online trolls, but in reality [it] was creating misery and divisiveness for profit,” Yost said in a statement. “We are not people to Mark Zuckerberg, we are the product and we are being used against each other out of greed.”

A spokesperson for Facebook’s parent company, Meta, said in an email that “this suit is without merit and we will defend ourselves vigorously.”