The US Securities Exchange Commission (SEC) has blocked the registration of two digital tokens by Wyoming-based American CryptoFed. A report disclosed this news on November 10, noting the regulator claims the company published insufficient and misleading information on their registration form.
According to the report, the SEC’s response comes after the company submitted the registration form for the two tokens namely Ducat and Locke as equity securities on September 16. In the filing, American CryptoFed said it seeks to create and maintain a monetary system with zero inflation, zero deflation, and zero transaction costs.
The firm claimed that its Ducat tokens offer protection against inflation through an algorithm that creates and destroys the tokens. However, the SEC claimed that the registration forms lacked certain vital information on top of containing materially misleading statements.
Per the SEC, American CryptoFed failed to disclose information on the nature of its business, management, and state, as well as audited financial statements. Additionally, the company did not divulge details about the tokens.
Kristina Littman, the Chief of the SEC Enforcement Division’s Cyber Unit, noted,
“Issuers attempting to raise money from the public must provide the information necessary for investors to make informed decisions. We allege American CryptoFed made materially misleading statements and failed to provide legally required information in its registration form.”
American CryptoFed disagrees with the SEC
The SEC noted that it would order administrative proceedings to determine the suitable actions required for investor protection. On top of this, the SEC said it would decide whether to deny or suspend the effective date of the two tokens. The SEC added that the tokens’ registration would remain in place pending a determination by an administrative law judge.
Responding to the SEC’s actions, American CryptoFed’s CEO, Marian Orr, said the company has been trying to reach the regulator to discuss the matter. However, the SEC failed to respond to the firm’s October counter-argument.
According to Orr,
“The purported ‘deficiencies’ the SEC referred to were the lack of attributes inherent to securities. These are attributes that the two tokens … of a decentralized blockchain-based CryptoFed DAO monetary system will never have. The SEC refused to respond to our rebuttal, although we repeatedly asked for their written response.”
SEC continues emphasizing the need for crypto regulation
This news comes after Gary Gensler, SEC’s Chair, said the watchdog intends to be very active in implementing its investor protector framework in the crypto sector. According to Gensler, the crypto market cannot mature without broader oversight for issues such as anti-money laundering and tax compliance.
He went further noted that the hype in the crypto sector attracts many investors looking to secure a better future by investing in digital assets. However, crypto platforms have not approached the SEC of the Commodity Futures Trading Commission (CFTC) to be within an investor protection framework.
As such, he believes cryptos raising money from the public without these consumer protections pose risks such as fraud and manipulation.