Kik Interactive Inc., an Ontario-based social media crypto startup, has taken a firm stand against a proposed enforcement action by the U.S Securities and Exchanges Commission (SEC).
Unlike several other projects that the SEC has swept under the carpet for an alleged non-compliance with U.S securities law, Kik plans to go to any extent possible to refute the agency’s claim that its ICO in 2017 fall into the regulator’s trap.
A WSJ report on January 27, confirmed the Kik would likely seek a court hearing if the SEC goes ahead to implement any enforcement action while a post published by CEO, Ted Livingston provided reasons why the startup is fighting against the US regulator.
KIK Vs. SEC Summary
- In 2017, KIK conducted an Initial Coin Offering (ICO) and raised nearly $100 million by issuing Kin tokens. The tokens were supposed to give users access to its proposed social media platform and other rewards internet-based services the project had in the pipeline.
- Kik said it was contacted by the SEC few days after their token sale began, with an extended conversation with the regulators culminating in a Wells Notice. The SEC usually sends a Wells Notice to a company it believes has violated its laws. The company’s response to the notice helps the regulators decide whether or not to carry out enforcement action.
- The SEC claimed in its Wells Notice that Kik violated its securities law by not registering their project with their agency.
- KIK stated in its response that their ICO and token distribution did not violate securities law based on three reasons :
- There was no common enterprise between Kik and the Kin Foundation and people who invested in the project.
- Kin token purchasers were not led to expect profits from the efforts of others, as the Howey Test defines a “security.”
- Any claims against the Kin Foundation are baseless because the SEC only mentioned that it was going to enforce actions against Kik, without stating precisely what the project has done wrong.
- Kik argues that any action taken by the SEC will only harm token holders, and will be against the regulator’s claim that they want to protect ICO investors.
- Kik’s CEO Ted Livingston cited that page 11 of the 1934 Securities Exchange Act explicitly states that the definition of a security “shall not include currency.” Kin tokens are cryptocurrencies, a new type of currency that grants users access to certain features on the Kin platform.
- The U.S government shutdown in previous weeks is likely the reason why the SEC is yet to decide on whether to carry on with its proposed decision to enforce actions against KIK. With the Commission back to work this week, four top officials are expected to vote for or against the move.
Kik Vs. SEC Case – A Defining Moment For the Crypto Industry
Until now, the SEC has virtually enjoyed a free ride in its decision to classify all ICOs as non-compliant with securities law. On the other hand, Kik has arguably presented the most substantial reasons that prove why not all ICO tokens are securities.
If the SEC’s board decides to enforce action against Kik, it will likely culminate in a court case, where a judge will determine which of the two parties is right or wrong.
However, if the SEC decides not to, then it would be considered an evidence that the commission has conceded to public assertions that ICO tokens need a new regulatory framework and not the 72-year old Howey Test precedent used to classify them.
So, it is clear that whatever decision is made at this point will become a precedent for judging the numerous ICOs and similar projects caught under the SEC’s trap right now.
It is the “Future of Crypto in the U.S” that is at stake, and everyone is hoping for the best.