On November 18, 2022, the SEC issued an order instituting proceedings (2022 OIP) against American CryptoFed DAO LLC (ACF), a Wyoming-registered decentralized autonomous organization (DAO) limited liability company (LLC), to determine whether a stop order should be issued to suspend the registration of the offer and sale of two ACF crypto assets, the Ducat token and the Locke token.

According to the OIP, ACF was registered in Wyoming on July 1, 2021 and is the successor entity to American CryptoFed, Inc., which was incorporated in Wyoming on February 11, 2021. On September 15, 2021, ACF sought approval from the SEC to issue the Ducat and Locke tokens it intended to offer to prospective DAO members by filing its SEC Form 10 (general form for registration of securities) registration statement under the Securities and Exchange Act of 1934, as amended (Exchange Act) and its Form S-1 registration statement under the Securities Act of 1933, as amended (Securities Act).

On Nov. 10, 2021, the SEC instituted proceedings (2021 OIP) against ACF, halting the registration of the Ducat and Locke tokens. On June 17, 2022, after months of administrative filings with the SEC, as recorded in the SEC docket for the 2021 OIP, the SEC issued an order that allowed ACF to withdraw the Form 10, but refused to allow ACF to also withdraw the Form S-1 for the Locke and Ducat tokens, which the SEC asserted was misleading. On July 6, 2022, ACF sought to withdraw the allegedly misleading Form S-1 offering registration for the Locke and Ducat tokens. On August 9, 2022, the SEC’s Division of Enforcement (DOE) announced in a notice filing that the 2021 OIP against the ACF was mooted by the SEC’s decision to accept the ACF’s withdrawal of its Form 10 registration statement under the Exchange Act.

In the 2022 OIP, the DOE alleges that the Form S-1 registration statement filed by ACF on September 15, 2021 for the Ducat and Locke tokens:

The DOE also alleges in the 2022 OIP that ACF failed to cooperate with the SEC during its examination of ACF's registration statement in the 2021 OIP. The DOE notes that ACF also claimed in an amendment to its registration statement that the Ducat token and the Locke token were not securities.

The SEC asserts in the 2022 OIP that it is appropriate and in the public interest that public proceedings pursuant to Section 8(d) of Securities Act be instituted with respect to ACF’s registration statement to:

In the 2022 OIP, the SEC announced that:

The ALJ issued an order on November 29, 2022 covering ministerial and procedural matters and noting that only the SEC can postpone the date and time of the hearing, which ACF sought to delay, as the 2022 OIP does not authorize the ALJ to postpone the commencement of the hearing. The ALJ further observed that the SEC may issue a stop order after opportunity for hearing at a time fixed by the SEC within 15 days after service of the 2022 OIP.

For details on SEC regulation of crypto and digital tokens, see Practice Note, SEC Regulation of Digital Assets.

For information on DAOs, see Practice Note, Decentralized Autonomous Organizations (DAOs): Overview.