coindesk.com
The Securities and Exchange Commission (SEC) and Kik are pushing for a speedy resolution to their ongoing legal battle, with both claiming the other has provided insufficient evidence to support their case.
In a motion for summary judgment filed at the District Court for the Southern District of New York, the SEC claimed Kik had failed to provide any "cognizable defense" for why it had not registered its kin token sale – which raised a total of $100 million in 2017 – with the regulator.
The SEC claims Kik sold tokens to investors on the understanding they would see a return – a key legal characteristic of a securities offering – through expanding utility in a growing token ecosystem. In the filing, the regulator cites instances where CEO Ted Livingstone suggested the kin price would likely increase in value.
The regulator also refutes Kik's claims that half its sale was exclusively for accredited investors, arguing that little effort was made to distinguish it from its public sale, with no restrictions on accredited investors selling newly-acquired kin tokens on the open market.
"This is a straightforward case in which Kik’s investment scheme and violation of Section 5 are easily identified," reads the SEC's filing. Although the Ontario-based company claims it does not come under the SEC's jurisdiction, the regulator says it made itself liable by selling to U.S. citizens.
Established in 2009, the firm intended kin tokens to work as part of a token economy integrated into its messaging app. The company claimed it hadn't hosted an unregistered securities sale since the SEC first took action in early 2018. Relations between the two sides have deteriorated, with Kik claiming the SEC "twisted facts" about its token sale in 2019.
In its motion for summary judgment, Kik argues that, contrary to the SEC's allegations, it followed U.S. securities legislation to the letter. The firm says it hosted two sales: a pre-sale round for accredited investors, to raise funds for developing the Kin ecosystem, and a second public sale to distribute tokens to users.
Kik claims to have filed a Form D notice for the pre-sale in September 2017, exempting it from registering the offering with the SEC. The company also argues that its second sale, open to the public, was not a securities offering because Kik did not promise returns on investment or offer contractual obligations to investors.
Kin tokens were also intended to become a new form of currency which, by law, are explicitly not classified as securities. This, Kik says, is in line with what other U.S. regulatory bodies, like the Commodity Futures Trading Commission (CFTC) and Internal Revenue Service (IRS), have ruled in classifying cryptocurrencies as commodities.
By disregarding key aspects of the sale and the nature of the token, Kik says the SEC is stepping outside of its remit: "The SEC asks this Court to bless an unprecedented and dramatic expansion of the SEC’s regulatory authority."
As recently as January of this year, Kik had again been pushing for a jury trial to make its case that its ICO was not in fact unlawful. And last summer, Livingston said the SEC complaint “presents a highly selective and grossly misleading picture of the facts and circumstances surrounding our 2017 pre-sale and token distribution event. We look forward to presenting the full story in court.”
Summary judgments are usually granted in cases where a judge deems the outcome to be a foregone conclusion and therefore not worth taking to full trial. However, it is common practice for defendants to file motions for summary judgments, even if the chance of success is relatively slim.
Both parties filed their motions for summary judgment last Friday.
See also: Kik Sells Messaging App, Reaffirms Kin Crypto Integration