- The SEC has filed a $100 million lawsuit against Kik Interactive
- The case comes as Kik was planning to fight SEC in court
- Kik founder and CEO says the suit is a path to getting clarity
The US Securities Exchange Commission (SEC) is suing Kik Interactive Inc. of ill-gotten gains and civil penalties. The Canadian interactive messaging App sold its coin called Kin to investors in 2017 without registering the agency.
ICO Violates Registration Requirements
According to a press release by the SEC on June 4, 2019, the Ontario-based company raised over US$100 million, of which $55 million came from U.S. investors in an Initial Coin Offering (ICO), which according to SEC rules, violates registration requirements of Section 5 of the Securities Act of 1933. The co-director of the SEC’s division of enforcement Steven Peikin stated in the release:
“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 […] companies do not face a binary choice between innovation and compliance with the federal securities laws.”
All Tokens are Securities
Kik Inc. marketed the Kin tokens that were meant to be used in the “Kin Ecosystem” in the future near the height of the initial coin offerings or ICO boom. However, SEC, according to the 49-page SEC complaint filed in the United States District Court for the Southern District of New York, alleges that it met the definition of a security, saying it was promoted when the company’s signature messenger business was flagging.
Initial Coin Offerings (ICO) is a complicated financial vehicle in which investors receive digital tokens instead of traditional stock. Most ICOs involved “utility” tokens designed to be built into the functionality of a blockchain-based service, which is meant to create value in the process. The SEC’s contention is that almost all tokens, apart from the cryptocurrencies bitcoin (BTC) and ether (ETH) are essentially securities and thus subject to well-established regulatory requirements under the law.
On A Path to Getting the Clarity
The SEC’s intention to sue Kik Inc. must have come as a shocker to Kik’s co-founder and CEO Ted Livingston who showed last January he planned to fight SEC’s expected enforcement action in court. The company launched a crowdfunding campaign to fight the SEC’s crackdown, which according to DefendCrypto.org has so far raised $4.6 million. Livingston said:
“This is the first time that we’re finally on a path to getting the clarity we so desperately need as an industry to be able to continue to innovate and build […] we hope this case will make it clear that the securities laws should not be applied to a currency used by millions of people in dozens of apps.”
