The unfolding Kik/Kin drama took a dramatic turn yesterday, with the SEC formally suing Kik Interactive Inc. for ‘conducting an illegal $100 million securities offering of digital tokens.’
Controversially, the charges levelled against Kik Interactive (‘Kik’) include the deliberate illegal sale of Kin tokens (alleged as securities by the SEC), totalling $100 million. According to the official press release, Kik has ‘lost money’ for years on its sole product, the online messaging application Kik. As a result, the company sought to ‘pivot to a new type of business’ – the Kin token and ecosystem – which it ‘financed through the sale of one trillion digital tokens’, called Kin.
Worryingly for token holders, Kik sold Kin tokens at a discounted price to wealthy purchasers (accredited investors) as well as token to the public. Moreover, the suit claims Kik expressly informed investors that the rising demand for the token would drive up the value of Kin, and that Kik would ‘undertake crucial work to spur that demand, including by incorporating the tokens into its messaging app, creating a new Kin transaction service, and building a system to reward other companies that adopt Kin.’
According to the SEC’s investigations, the timeline of these events mean that the advertised systems and network did not exist at the time that Kik offered its tokens for sale. It is further alleged that Kik kept three trillion Kin tokens to be immediately traded on the secondary markets, profiting the company alongside investors from the supposed increased demand.
“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,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement. “Companies do not face a binary choice between innovation and compliance with the federal securities laws.”
This action by the SEC was predicted by many in the cryptocurrency space, and is seen by some as a deliberate attempt at international ‘marketing’. To increase awareness (and fight the SEC) Kik has set up at ‘Defend Crypto’ fundraiser in order to refute the SEC’s allegations in court. Already totalling $4.38 million, the fund has garnered the wider attention of crypto-supporters/defenders.
Interestingly, Kik and billionaire CEO Ted Livingston, refused initial cooperation with the SEC, which would have likely made this suit entirely avoidable. Critics point out that by asking the public to bail the company out of not only a failing initial product offering (Kik) but also an avoidable major lawsuit, that they are again taking advantage of their loyal customer-base.
Such condemnation garners merit with the above allegation of a private, discounted token sale taken into consideration.
Kik and Ted deny these allegations, and seem to be squaring up for an almighty battle in the US courts; of which the outcome will likely shape SEC policy for years to come.