DAO Settles SEC Charges for Offering Unregistered Crypto Securities

A decentralized autonomous organization ("DAO") and its two founders agreed to settle SEC charges for failing to register the offer and sale of structured crypto asset securities (see here and here).

According to the SEC, the DAO offered and sold to the public structured crypto asset securities - "SMART Yield bonds" - in unregistered transactions. The SEC stated that, through their website, the DAO offered variable and fixed rate returns to investors who invested more than $509 million. The SEC found that the DAO collected fees on these investments. The SEC further charged the DAO and the founders with operating "SMART Yield pools" as unregistered investment companies.

The SEC found that the DAO violated Securities Act Section 5(a) ("Sale or delivery after sale of unregistered securities") and Section 5(c) ("Necessity of filing registration statement") by "offering and selling SMART Yield bonds as fixed income notes, and therefore securities, without having a registration statement filed or in effect with the Commission or qualifying for an exemption from registration." The SEC also concluded that the founders "caused the Pools to violate Investment Company Act Section 7(a)" ("Prohibition of transactions in interstate commerce") by "offering and selling investments in more than a dozen SMART Yield Pools which were not registered with the Commission as investment companies."

To settle the SEC's charges, the DAO agreed to (i) cease-and-desist orders, (ii) disgorge nearly $1.5 million of proceeds from the sales and (iii) take remedial actions. The founders each agreed to pay a $125,000 civil penalty.