SEC Halts Registration of 2 Digital Tokens Over Allegedly Misleading and Missing Information

The SEC, however, alleged the form didn’t contain certain required information, such as information about the two tokens and the company’s business, management and financial state, including audited financial statements. The forms also allegedly contained materially misleading statements and omissions, the SEC said.

In its order, the SEC said that without any action, the registration form would automatically have become effective next Monday. With Wednesday’s action, however, the tokens remain restricted and untradeable until these proceedings are resolved.

Marian Orr, the chief executive of American CryptoFed, said in an emailed statement that the company rebutted point by point the deficiencies raised by the SEC in a letter on Oct. 12, adding that the company looks forward to future communications with the SEC, including through a public hearing.

“The purported ‘deficiencies’ the SEC referred to were the lack of attributes inherent to securities,” Ms. Orr said in the statement. “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.”

The action comes as SEC Chairman Gary Gensler said last week that the regulator would be “very active” in bringing the digital currency market under its investor protection framework. Mr. Gensler also said the crypto market wouldn’t mature without broader oversight.

“The SEC’s action confirms the close scrutiny that the agency continues to bring to entities in the fast-growing digital assets sector, including those that claim to employ novel corporate structures and offer novel financial products,” said Sujit Raman, a partner at law firm Sidley Austin LLP who previously served as an associate deputy attorney general at the Justice Department.

Write to Mengqi Sun at [email protected]