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SEC Halts Registration of Two Digital Tokens

The SEC instituted proceedings halting the effectiveness of a Wyoming-based digital asset company's registration of two digital tokens as securities. The Division of Enforcement alleged the company filed “materially deficient and misleading” information in its attempt to register the tokens as equity securities.

In the SEC’s Order, the Division alleged the company filed a Form 10 to register securities under the Securities Exchange Act that:

  • failed to contain required information about the two tokens and the issuer, including as to its business, management, and financial condition, and

  • included inconsistencies, omissions, and “materially misleading” statements about (i) whether the two tokens are securities and (ii) whether the company could legally distribute one of the tokens to the public using a Form S-8 (which is used to offer securities to employees through an employee benefit plan).

The SEC investigation is ongoing. Pending a determination by an administrative law judge, registration of the two tokens is stayed.

"Assuming the accuracy of the SEC's Order, the issuer's legal position and disclosure seem poorly conceived. Apparently, the issuer asserted that the tokens were not "securities," obviously raising the question as to why the issuer was attempting to register them as securities. The SEC is fulfilling its statutory mission when it stands in the way of obvious violations of the securities laws. Going after such obvious violations, however, does not excuse the SEC from issuing guidance as to more difficult situations," said Steven Lofchie.

© Copyright 2022 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XI, Number 314
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About this Author

At Cadwalader, Wickersham & Taft LLP, we put over 225 years of legal experience and innovation to work for you today. As one of the world's most prominent financial services law firms, we have long-standing client relationships with premier financial institutions, funds, Fortune 500 companies and other leading corporations, and individual private clients. We have earned a reputation for crafting innovative business and financial solutions and developing precedent-setting legal strategies to achieve our clients' goals. The result is simple: We stand out from...

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Steven Lofchie, Cadwalader, financial services regulation attorney, derivatives market lawyer
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Steven Lofchie, a partner in the Financial Services Group, concentrates his practice in advising financial institutions on regulatory issues and on derivatives and other financial instruments. He is consistently recognized in the United States by Chambers USA, Legal 500, and IFLR 1000 in the areas of financial services regulation and derivatives. The Best Lawyers in America also selected Steven as one of the nation's leading lawyers in several areas including: Administrative/Regulatory, Derivatives and Futures, Securities/Capital Markets, and...

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