- Social Media firm Kik intends to sue the SEC over their classification of security tokens
- Kik’s KIN Tokens were released last year as utility tokens but the SEC considers them as security tokens
- This could set a new precedent for the classification of tokens
Another thing that has caused much controversy is the legality behind ICOs. In 2018, the SEC announced that it shut down several ICOs due to them not being properly registered. The same year, Kik, a messaging app, released $100 million worth of KIN, its native Token. This led the SEC to accuse the firm of running an unregistered ICO.
Kik is pushing back against these allegations, arguing that their KIN tokens are not security tokens but rather utility tokens. According to the management of Kik, the tokens aren’t for investment per se but instead, serve as an incentive for the use of the platform.
The SEC believes that ICOs quality as securities and thus should be subject to the same laws.
“I have yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security,” SEC Chairman Jay Clayton said, noting that a majority of the ICOs launched in 2017 and 2018 would classify as securities.
However, utility tokens, in this case, would be a completely different asset class of their own and this case would serve to bring attention to them and potentially expose the outdated nature of some of the SEC’s practices.
For now, ICOs are treated as securities and are subject to a 73-year old court ruling which classifies securities as being issued for profit-making purposes and having their value tied to the performance of the firm they are associated with.
In Kik’s opinion, the KIN tokens aren’t for profit-making and those who bought into them were informed not to expect to make money from them.
“Bringing the proposed enforcement action against Kik and the foundation would amount to doubling down on a deeply flawed regulatory and enforcement approach,” said the lawyers for Kik.
A case such as this has the makings of a landmark one which could help bring attention to not only the SEC’s treatment of the crypto industry but could help set new laws.
In the United States, new pro-crypto laws have been on the increase. In New Hampshire, lawmakers are considering a law that would make it possible to pay taxes and various fees in bitcoin while in Ohio, Bitcoin is now accepted as a form of tax payment.