legal brief
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 11134 / November 18, 2022
ADMINISTRATIVE PROCEEDING
File No. 3-21243
In the Matter of
The Registration Statement of
American CryptoFed DAO LLC,
Respondent.
ORDER FIXING TIME AND
PLACE OF PUBLIC
HEARINGS AND
INSTITUTING
ADMINISTRATIVE
PROCEEDINGS PURSUANT
TO SECTION 8(d) OF THE
SECURITIES ACT OF 1933
I.
The Commission’s public official files disclose that:
On September 16, 2021, American CryptoFed DAO LLC (“American CryptoFed”
or “Respondent”) filed a Form 10 registration statement with the Commission, seeking to
register two classes of crypto assets, the Ducat and Locke tokens, as securities under
Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”).
On September 17, 2021, American CryptoFed filed a Form S-1 registration
statement (the “Registration Statement”) seeking to register the offer and sale of the Ducat
and Locke tokens under the Securities Act of 1933 (“Securities Act”). Respondent’s
Registration Statement is pending and is not yet effective.
On November 9, 2021, the Commission issued an Order Directing Examination and
Designating Officers Pursuant to Section 8(e) of the Securities Act of 1933 (the “8(e)
Order”) ordering an examination into the Registration Statement of American CryptoFed.
On November 10, 2021, the Commission issued an Order Instituting Administrative
Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange
Act of 1934 against American CryptoFed to determine whether it is necessary and
appropriate for the protection of investors to deny, or suspend the effective date of, the
registration of the Ducat and Locke tokens.
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On June 6, 2022, American CryptoFed filed an application to withdraw its
September 17, 2021 Registration Statement. On June 17, 2022, the Commission issued an
order denying withdrawal of Respondent’s Registration Statement.
II.
After an examination, the Division of Enforcement alleges that:
A. Respondent
1. American CryptoFed DAO LLC (CIK No. 1881928), was established in
Wyoming on July 1, 2021 as a “Decentralized Autonomous Organization” (“DAO”). It is
the successor entity to American CryptoFed, Inc., which was incorporated in Wyoming on
February 11, 2021.
2. On September 17, 2021, Respondent filed the Registration Statement
seeking to register the offer and sale of the Ducat and Locke tokens under the Securities
Act.
3. Respondent listed the Ducat and Locke tokens in the introductory pages of
Respondent’s Registration Statement under the heading “Title of Each Class of Securities
to be Registered.”
B. Material Omissions and Misstatements in Respondent’s Registration
Statement
4. Respondent’s Registration Statement omitted material information required
to be provided in the Registration Statement by the Form S-1, Regulation S-X, and
Regulation S-K.
5. Item 11(e) of Form S-1 requires a registrant to furnish all financial
statements required by Regulation S-X. Articles 3 and 8 of Regulation S-X require that a
Form S-1 contain audited annual and unaudited interim financial statements. Respondent’s
Registration Statement does not contain any financial statements, audited or otherwise.
6. Item 11(h) of Form S-1 requires a registrant to furnish the information
required by Item 303 of Regulation S-K, which requires disclosure of management’s
discussion and analysis of the registrant’s financial condition and results of operations.
Respondent’s Registration Statement does not address the specific disclosure requirements
of Item 303 of Regulation S-K.
7. Item 11(m) of Form S-1 requires the registrant to furnish the information
required by Item 403 of Regulation S-K, which requires a tabular disclosure of security
ownership of directors and executive officers and greater than 5% holders, including the
total number of shares beneficially owned and the percentage of the class so owned for
each such beneficial owner. Respondent’s Registration Statement does not include the
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table required by Item 403 nor does it include the information required to be included in the
table.
8. Item 11(l) of Form S-1 requires a registrant to furnish the information
required by Item 402 of Regulation S-K, which requires a summary compensation table
that quantifies the compensation paid to the registrant’s named executive officers.
Respondent’s Registration Statement does not include compensation disclosure for each of
Respondent’s three organizers, nor does it include a table with any of the required
information.
9. Item 11(a) of Form S-1 requires a registrant to furnish the information
required by Item 101 of Regulation S-K, which requires a description of the general
development of the business of the registrant. Respondent’s Registration Statement
includes a “Business” section that does not include any of the disclosure required by Item
101, but rather refers to the business section disclosure in the Form 10 filed by Respondent.
Respondent does not meet the eligibility requirements to incorporate required disclosure by
reference to another filing made with the Commission. In any event, the disclosure in
Respondent’s Form 10, which Respondent withdrew effective July 6, 2022, fails to provide
a clear and complete discussion of its business and does not meet the disclosure
requirements of Item 101 of Regulation S-K.
10. Item 16(a) of Form S-1 requires a registrant to furnish the information
required by Item 601 of Regulation S-K, which requires the registrant to file certain
documents as exhibits to the registration statement. In particular, Item 601 requires the
registrant to file material contracts. Respondent’s Registration Statement does not include
any material contracts.
11. Item 601 of Regulation S-K also requires the registrant to include an
opinion of counsel as to the legality of the securities being registered. Respondent’s
Registration Statement does not include a legality opinion.
12. Respondent’s Registration Statement also contains materially misleading
statements. The Registration Statement states that the Ducat and Locke tokens are not
securities, which is inconsistent with the statement identifying those tokens as “Securities
to be Registered,” and with Respondent’s use of the Registration Statement to register the
offer and sale of the tokens under the Securities Act. As these statements contained in
Respondent’s Registration Statement contradict each other, regardless of whether the
tokens are securities, one of the statements must be false.
C. Respondent’s Failure To Cooperate With The Section 8(e) Examination
13. Pursuant to the 8(e) Order, Commission staff is examining, in part, whether
there are material misstatements in the Registration Statement, including whether there are
material misstatements regarding whether or not the Ducat and Locke tokens are being
offered as securities.
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14. Respondent listed the Ducat and Locke tokens in the introductory pages of
Respondent’s Registration Statement under the heading “Title of Each Class of Securities
to be Registered.” Respondent referred to the Ducat and Locke tokens as “securities” in
other sections of the Registration Statement as well.
15. Later in the Respondent’s Registration Statement, Respondent stated that it
“is registering both Locke and Ducat tokens with the SEC as utility tokens, not as
securities,” even though the Form S-1 is a form to register only an offering of securities.
16. Despite Respondent’s Registration Statement not being effective yet,
Respondent wrote a letter to Commission staff on May 30, 2022, indicating its intent to
commence the offering of Locke tokens as soon as the third quarter 2022.
17. On June 15, 2022, Commission staff issued a document subpoena to
Respondent pursuant to the 8(e) Order.
18. The June 15, 2022 subpoena contained fifteen document requests seeking
several categories of documents including: a) documents concerning the identification of
and communications with several third parties who are or may be involved in the offering;
b) documents related to the mechanics of the offering, including the refundable auctions,
potential use of NFTs in the offering, and trustless accounts; c) documents related to the
custody of certain fiat and digital assets; and d) communications with “crypto asset
exchanges.”
19. Respondent did not produce any documents to Commission staff pursuant to
the June 15, 2022 subpoena.
20. On June 21, 2022, Respondent sent a letter to the Commission staff via e-
mail. In that letter, Respondent objected to each request contained in the June 15, 2022
subpoena on the basis that each request:
is not reasonably calculated to lead to the discovery of relevant,
admissible evidence which can rebut American CryptoFed’s assertion
that American CryptoFed has No Fund Raising, No Revenue, No
Costs, No Profits and No Assets and therefore there is no traditional
balance sheet equation of Assets = Liabilities + Shareholder’s
Equities to generate securities subject to the SEC’s jurisdiction.
21. Respondent’s objection stated in paragraph 20 above, is inconsistent with the
fact that it sought to register the offer and sale of the Ducat and Locke tokens in the
Registration Statement filed with the Commission. It is also not a valid objection for
multiple reasons, including that it misstates the relevance standard in Commission
examinations, which the Commission staff communicated to American CryptoFed. Despite
this, American CryptoFed persisted in making this invalid objection and refused to provide
any documents in response to the June 15, 2022 subpoena.
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22. Respondent did provide a narrative response to twelve of the fifteen
requests in the June 15, 2022, but many of those narratives failed to address the specific
requests contained in the subpoena.
23. For instance, Requests 2 and 3 of the June 15, 2022 subpoena requested
documents related to the identification of certain Contributors (as defined in the June 15,
2022 subpoena) and communications with those Contributors. After objecting to the
request, Respondent pointed to the Registration Statement and the September 16, 2021
Form 10 filed by Respondent as containing the relevant information.
24. Neither the Registration Statement nor Respondent’s Form 10 contain
identifying information for Contributors, nor do the forms contain communications with
those Contributors.
25. Additionally, even if Respondent had provided narrative responses that did
contain responsive information, that would not relieve Respondent of the obligation to
provide responsive documents.
26. On July 7, 2022, Commission staff took testimony from the president of
American CryptoFed pursuant to a June 28, 2022 subpoena issued pursuant to the 8(e)
Order. In testimony, the American CryptoFed president objected to many of the
Commission staff’s questions, including questions seeking to determine whether the Locke
and Ducat tokens are securities, asserting lengthy objections similar to the to the objections
raised in response to the requests in the June 15, 2022 subpoena.
27. In testimony, the American CryptoFed president sometimes followed up
with an answer notwithstanding this objection, though his answers frequently did not
completely or directly answer the questions. For instance, he pointed to the “principles”
found in the Registration Statement instead of answering the specific question about how
mechanically the Locke token refundable auctions might work. These references to the
“principles” in the Registration Statement did not provide substantive responses to the
questions asked.
28. During testimony, the American CryptoFed president refused to provide the
names of the up to fifteen people to whom the Registration Statement states the Locke
tokens have been granted or promised, indicating that he would be willing to provide the
names in response to a written request.
29. On August 4, 2022, Commission staff sent a letter to the American
CryptoFed president expressing concern that Respondent and the American CryptoFed
president had failed to meet their obligations to respond fully and accurately to the
subpoenas, asking that he review the June 15, 2022 subpoena requests and provide all
documents covered by the requests in the subpoena to the Commission staff, and requesting
that he provide to Commission staff the names of the up to fifteen people to whom Locke
tokens have been granted or promised, as disclosed in the Registration Statement.
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30. On August 8, 2022, the American CryptoFed president responded to the
Commission staff’s August 4, 2022 letter. In that response, the American CryptoFed
president failed to provide the requested information and instead asserted that “The
Subpoenas pursuant to the 8(e) Order Are Unlawful” and “The Order Denying American
CryptoFed’s Form S-1 Withdrawal Is Unlawful.”
31. To date, no documents have been produced to the Commission staff pursuant
to the June 15, 2022 subpoena or the subsequent August 4, 2022 letter.
32. American CryptoFed, by refusing to provide documents on the basis of
invalid objections, and by its President refusing to answer multiple questions in testimony
on the basis of invalid objections, failed to cooperate with the examination being conducted
by the Commission staff pursuant to the 8(e) Order.
III.
The Commission, having considered the aforesaid, deems it appropriate and in the
public interest that public proceedings pursuant to Section 8(d) of the Securities Act be
instituted with respect to the Registration Statement to determine whether the allegations of
the Division of Enforcement are true; to afford the Respondent with an opportunity to
establish any defenses to these allegations; and to determine whether a stop order should
issue suspending the effectiveness of the Registration Statement referred to herein.
Accordingly, IT IS ORDERED that public proceedings be and hereby are instituted
under Section 8(d) of the Securities Act, such hearing to be commenced at 10:00 A.M. on
December 1, 2022 via remote means and/or in Hearing Room 1 at the Commission’s
offices at 100 F Street N.E., Washington, DC 20549, and to continue thereafter at such time
and place as the hearing officer may determine.
IT IS FURTHER ORDERED that these proceedings shall be presided over by an
Administrative Law Judge to be designated by further order, who is authorized to perform
all the duties of an Administrative Law Judge as set forth in the Commission’s Rules of
Practice or as otherwise provided by law.
IT IS FURTHER ORDERED that the Respondent shall file an Answer to the
allegations contained in this Order within ten (10) days after service of this Order,
pursuant to Rule 220 of the Commission’s Rules of Practice, 17 C.F.R. § 201.220. If the
Respondent fails to file the directed answer, or fails to appear at a hearing after being
duly notified, the Respondent may be deemed in default and the proceedings may be
determined against the Respondent upon consideration of this Order, the allegations of
which may be deemed to be true as provided by Rules 155(a), 220(f), 221(f) and 310 of
the Commission’s Rules of Practice, 17 C.F.R. §§201.155(a), 201.220(f), 201.221(f) and
201.310. This Order shall be served forthwith upon the Respondent in accordance with
Rule 141 of the Commission’s Rules of Practice, 17 C.F.R. §201.141.
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IT IS FURTHER ORDERED that the Administrative Law Judge shall issue an
initial decision no later than 30 days from the occurrence of one of the following events:
(A) The completion of post-hearing briefing in a proceeding where the hearing has been
completed; (B) Where the hearing officer has determined that no hearing is necessary,
upon completion of briefing on a motion pursuant to Rule 250 of the Commission’s Rules
of Practice, 17 C.F.R. § 201.250; or (C) The determination by the hearing officer that a
party is deemed to be in default under Rule 155 of the Commission’s Rules of Practice,
17 C.F.R. § 201.155 and no hearing is necessary.
IT IS FURTHER ORDERED that, pursuant to Section 5(c) of the Securities Act,
American CryptoFed may not make use of any means or instruments of transportation or
communication in interstate commerce or of the mails to offer to sell or offer to buy any
securities pursuant to the Registration Statement during the pendency of this proceeding.
Attention is called to Rule 151(a), (b) and (c) of the Commission’s Rules of
Practice, 17 C.F.R. § 201.151(a), (b) and (c), providing that when, as here, a proceeding
is set before the Commission, all papers (including those listed in the following
paragraph) shall be filed electronically in administrative proceedings using the
Commission’s Electronic Filing in Administrative Proceedings (eFAP) system access
through the Commission’s website, www.sec.gov, at
Respondent also must serve and accept service of documents electronically. All motions,
objections, or applications will be decided by the Commission.
In the absence of an appropriate waiver, no officer or employee of the
Commission engaged in the performance of investigative or prosecuting functions in this
or any factually related proceeding will be permitted to participate or advise in the
decision of this matter, except as witness or counsel in proceedings held pursuant to
notice.
Since this proceeding is not “rule making” within the meaning of Section 551 of
the Administrative Procedure Act, it is not deemed subject to the provisions of Section
553 delaying the effective date of any final Commission action.
By the Commission.
Vanessa A. Countryman
Secretary
