SEC Puts Brakes on First Legally Recognized DAO

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  • The SEC has halted the operations of American CryptoFed, which hoped to be the first legally recognized DAO
  • American CryptoFed was accused of putting “materially deficient and misleading” statements on its application form
  • The founders now face legal action of their attempt to be approved to issue securities

The Securities and Exchange Commission (SEC) has put the brakes on what would have been the first legally recognized DAO in the U.S. after claiming it misled investors. The SEC called a halt to the efforts of American CryptoFed to register itself as an issuer of securities just as it looked like the project would become the first legally registered DAO. Now, instead, the American CryptoFed founders face a fine for their actions.

American CryptoFed Offered “Misleading” Information

American CryptoFed DAO filed with the SEC in September to be an issuer of securities, but the SEC claimed in an order yesterday that the company had not provided sufficient information about the two tokens associated with the project, Ducat and Locke. Worse, what was provided was “materially deficient and misleading” which has led not just to the project being halted but the creators now facing legal action.

DAOs Remain Under the Radar

American CryptoFed was awarded legal status in July, becoming the first DAO in the U.S. to receive such status, but it seems that they weren’t able to overcome a bigger hurdle in the SEC, raising questions over the efficacy of the process in crypto-friendly Wyoming where the DAO was officially recognized.

A DAO (decentralized autonomous organization) is an organization that spreads ownership and control among token holders rather than relying on a typical corporate hierarchical structure. DAOs are a new concept but have grown in popularity in the crypto space in recent years.