KIK VS SEC- Startup Challenge Proposed Regulatory Action

Wilfred Michael 

Wilfred Michael

News reporter

28 January 2019,
17:03
KIK VS SEC- Startup Challenge Proposed Regulatory Action

Kik Interactive Inc., a crypto startup based in Canada has vowed to take the U.S Securities and Exchanges Commission (SEC) to court if the regulatory body goes ahead to enforce actions against them, for non-compliance with securities law.

A blog post on January 27 by Kin’s CEO, Ted Livingston provided clear reasons why ICO tokens do not fall under the SEC’s securities tag. A standout point is that page 11 of the 1934 Securities Exchange Act explicitly states that the definition of a security “shall not include currency.”

He also called on everyone in the crypto ecosystem to support Kik in their quest to overturn the SEC’s proposed enforcement action, calling the soon to be announced decision — “a vote on the future of crypto in the U.S.”

The KIN vs. SEC Story So Far

Kin raised nearly $100 million during its initial coin offering (ICO) in 2017 and plans to use the funds to develop a social media platform where users could earn Kin tokens for engaging with others on the platform.

However, in line with earlier comments by SEC chairman, Jay Clayton, the regulators concluded that the project did not register their ICO as a securities offering with their agency and plans to enforce an action against them.

On November 16, the SEC made a Wells Call to Kik; an initial notice sent to a company under scrutiny to issue their response to the charges against them.

On December 10, 2018, Kik issued a response to the SEC’s Wells Call, outlining their business’s mode of operation and how the SEC is creating a negative impact by insisting on classifying all ICO tokens as securities.

The startup clearly showed that Kin tokens should not be classified as securities under the Howey Test for three reasons -

  1. Kin Purchasers Were Not Led to Expect Profits from the Efforts of Others

  2. The Pre-Sale and Token Distribution Do Not Constitute “Investment Contracts”

  3. Any Claims Against the Kin Foundation Are Baseless since the SEC Wells Call did not state precisely on what grounds the SEC is charging the project.

The recent shutdown of the U.S government may be the reason why the SEC is yet to make an announcement or take action against Kik. Commissioners at the agency are expected to vote on whether or not to enforce an action against Kik and could do so in the coming weeks after resuming work today.

Kik is assured of a court hearing if it rejects any enforcement actions by the SEC, a situation that would allow a Federal court to rule on the matter.

Meanwhile, Kik’s resistance to regulatory pressure is the second real opposition that the U.S SEC is facing in its quest to classify all ICO tokens as securities.

In November, we reported that a San Diego District Judge, Gonzalo Curiel denied a request for a preliminary injunction by the SEC against the issuers of Blockvest ICO. The judge ruled that the SEC did not provide enough evidence to prove that the tokens issued by the ICO fall under their securities classification.

 

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