The U.S. Securities and Exchange Commission (SEC) is suing Kitchener, Ont.-based Kik Interactive over the $100-million 2017 initial coin offering (ICO) of its token, Kin. (The Logic)
What the SEC is saying: Kik, which is best known as a messaging platform, failed to register the offering with securities regulators and marketed it as an investment opportunity but didn’t comply with laws requiring it to provide investors with full and fair disclosure about its business. The SEC also alleges that Kik told investors they could make a profit by buying Kin, and that tokens recently traded at about half their value at ICO.
What Kik is saying: Kin is a currency, not a security; the regulator doesn’t have the authority to pursue an action; and Kik sold the token as something to use, not a way to make profits.
Why it matters (globally): The case could set a precedent for cryptocurrency regulation, and limit the SEC’s powers to police ICOs if Kik wins. The regulator’s previous token targets have mostly chosen to settle rather than fight it out in court. “It might actually benefit the crypto industry and clear up some of the regulatory uncertainty if more courts weighed in on what the securities law is as applied to the crypto space,” wrote Katie Haun in May; Haun is a general partner at Andreessen Horowitz and a high-profile former federal prosecutor who frequently led Bitcoin cases.
Why it matters (to Canadians): Kik is one of Canada’s only unicorns, and it’s positioned itself as an alternative to a Facebook-dominated messaging and crypto future. The U.S. social media giant has repeatedly followed the Canadian startup’s business model shifts. Kik was one of the first companies outside Asia to make its app a gateway to shopping and other services, a model that Facebook has since adopted. Kin is a way of making money from that ecosystem, since its value should increase with use, and Kik holds a sizeable number of tokens; Facebook is now also looking to launch its own cryptocurrency.
What Kik CEO Ted Livingston is tweeting: “We are finally on the path to getting the clarity our industry so desperately needs. We are excited to take on the SEC in court, and are confident we will win. It is time to #defendcrypto.”
What’s happened so far: In November 2018, SEC staff informed Kik it had made a “preliminary determination” to recommend an enforcement action against the company. Kik filed its response the following month.
Who’s funding it: Kik has set aside $5 million in cryptocurrency for the legal battle, and it’s also crowdfunding. Its Defend Crypto campaign has raised $4.5 million in pledges so far, with $731,000 of that in Kin.
