Kik is Getting Ready for the Legal Battle with the SEC

The company will challenge the U.S. regulators in court over a potential enforcement action against 2017 KIN token offering. 

Photo: Pixabay

Photo: Pixabay

Initial coin offerings (ICOs) have become widely spread, but not all are positive about this new form of funding. Regulators of the U.S. are continuously taking measures against ICOs. Jay Clayton, a commissioner at the U.S.’ Securities and Exchange Commission (SEC), stated earlier that ICOs are not exempt from the financial legislature. According to Clayton, ICOs are extremely risky and connected with fraud and manipulation.

Jay Clayton said:

“I believe every ICO I’ve seen is a security.”

He goes by the 1934 Securities Exchange Act which states:

“The term ‘‘security’’ means any note, stock, treasury stock, security future, security-based swap, bond, debenture, certificate of interest or participation in any profit-sharing agreement… but shall not include currency or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the time of issuance.”

ICOs have become the reason of disagreement between SEC and Canada-based social media giant Kik that is planning to take the SEC to court over a potential enforcement action against 2017 KIN token offering.

In 2017, Kik raised nearly $100M for its new Kin token to be used by messenger’s 15 million users as the primary transaction currency. More than 10,000 people from 117 countries contributed to this token distribution event. $42M out of total $98.8M was raised in the first 48 hours of sale.

According to Kik CEO Ted Livingston, a few days after their token sale had started, the SEC began taking enforcement action over the ICO. On Medium, Livingston wrote:

“Since then, our conversations slowly ramped up — first with more questions, then with subpoenas over the winter, and then formal testimony in Washington over the summer. This process culminated with them issuing us a Wells Notice on November 16, 2018. This notice outlines why the SEC thinks there has been a securities infraction.

On December 7, 2018, we submitted our Wells Response. This response outlines the many reasons why we think there has not been an infraction.”

Further, he said:

“The next step is for the SEC staff to take these two documents and decide if they want to make a recommendation to the four SEC commissioners to authorize a case against us.”

Livingston also told the Wall Street Journal about the company’s upcoming legal battle with the Washington D.C. regulatory giant. The company believes that its rebuttal may set a precedent for the entire crypto industry. Kik’s lawyers said:

“Bringing the proposed enforcement action against Kik and the foundation would amount to doubling down on a deeply flawed regulatory and enforcement approach.”

The Kik Interactive’s official Wells Response states:

“[T]he Staff’s proposed enforcement action against Kik and the Kin Foundation will likewise fail any rigorous analysis of whether offers and sales of Kin amounted to offers or sales of a “security” within the scope of Section 5 of the ’33 Act. Kin was designed, marketed, and offered as a currency to be used as a medium of exchange within a new digital economy.”

If the judge determines that Kik’s ICO wasn’t a securities offering, the company will be safe from hefty fines and other stringent measures. Moreover, it will also aid dozens of other projects struggling under the SEC’s iron fist. Kik said:

“This situation is not unique to Kik. There are dozens of projects at a similar point with the SEC. We all believe that this industry needs regulation, but we also believe that this is not the way to get it.”

The company itself believes that Kin is “one cryptocurrency that truly is a currency”. Supported by over 30 apps live in the Google Play and iOS App Stores, Kin is used by hundreds of thousands of people.

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