Back to the list

Challenge Accepted: SEC Filed Charges Against Kik Interactive (KIN)

Denis Goncharenko

If your project comes to the attention of the US Securities and Exchange Commission (SEC) – then it’s some serious trouble and that sometimes happens in the cryptocurrency community. There are cases of huge fines, cease & desist orders, lengthy and debilitating lawsuits, and many other “charming things”. SEC is good at suppressing activities of fraudulent companies and pseudo-projects, but their fierce approach has become a talk of the town, like, the case of the EtherDelta.

15-11-2018 16:58:00  |   Analytics
However, there is a desperate one who challenged the “American Cerberus”. A Canadian startup Kik was going to settle the issue with the regulator in court in January. So the reaction followed: the US Securities and Exchange Commission sued this popular project, as a result Kin asset instantly fell in price by more than 30%, according to CoinMarketCap.

In a June 4 statement, the Commission wrote:

“The Securities and Exchange Commission today sued Kik Interactive Inc. for conducting an illegal $100 million securities offering of digital tokens.  The SEC charges that Kik sold the tokens to U.S. investors without registering their offer and sale as required by the U.S. securities laws.”

The SEC also stated that Kik’s messaging application had “lost money over the years,” and the funds should have been run out by 2017. The company decided to launch ICO in 2017 and, according to the SEC, raised more than 55 million dollars from the Americans. In the statement, SEC said that Kik presented Kin as an investment tool:

“Kik allegedly told investors that rising demand would drive up the value of Kin, and that Kik would undertake crucial work to spur that demand, including by incorporating the tokens into its messaging app, creating a new Kin transaction service, and building a system to reward other companies that adopt Kin”

The Commission noted that Kik didn’t have a ready product while selling assets. In fact, it couldn’t be used as a means of payment for goods or services, since the specified product hadn’t existed yet. According to representatives of the Commission, ICO Kin assumed the issue of securities and in this case, Kik had to be properly registered. As SECDivision of Enforcement co-director Steven PEIKIN noted:

“By selling $100 million in securities without registering the offers or sales, we allege that Kik deprived investors of information to which they were legally entitled, and prevented investors from making informed investment decisions.”

Also, SEC Enforcement Division Cyber Unit Chief Robert A. COHEN noted in the statement:

“Kik told investors they could expect profits from its effort to create a digital ecosystem […] Future profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities laws.”

Naturally, Kik Interactive Inc denies the fact that Kin token is a security — Kik CEO Ted LIVINGSTON spoke about it in January this year. Before Kik, there may have been something of a waiting game among issuers of the largest ICOs. Perhaps it was to see if the SEC truly had the will, resources, or know-how to prosecute these cases, says Philip MOUSTAKIS, counsel at Seward & Kissel LLP and Former SEC Senior Counsel:

“With the Kik filing, the gauntlet has been thrown. That’s evident in the level of detail in the complaint. <...> Large ICO issuers who are already the subject of an investigation but may have been stalling may now want to engage the SEC staff more proactively. Others similarly situated may want to engage counsel to consider their options.”

According to the expert, it is important to remember that the SEC approach to securities regulation is based on certain principles, where an investment contract is security whatever form it may take and no matter what technology is used in its offering. We only have to wish Kik some perseverance, luck and patience. The struggle seems to be unequal, and the market is currently not voting for Kin.

Image courtesy of Cryptonewsz

Back to the list