The United States Securities and Exchanges Commission (SEC) has officially sued Canada-based messaging platform, Kik for its ICO in 2017 through which the company raised near $100 from token sales.
In a press release regarding the charges, the SEC alleged that by selling securities to U.S investors, Kik violated Section 5 of the U.S Securities Act which requires that any company selling securities must register with the regulators.
Other Allegations Against KIK
Kik had funding issues before the token sale and could have gone out of business quickly at the end of 2017 if not for the token sale. Earlier attempts to sell the company proved abortive according to the SEC.
Kik marketed the kin tokens as a speculative investment, even selling at a discount to wealthy investors. U.S investors along allegedly contributed $55 million, more than half of the total funds raised.
Kik told investors that demand would drive the value of kin tokens up while the company worked on other strategies that can enhance adoption.
Kik did not have any services or systems when it sold the tokens as the startup had claimed in its defense.
By not registering its offering “Kik deprived investors of information to which they were legally entitled, and prevented investors from making informed investment decisions.”
Kin tokens traded recently at about half of the value that public investors paid in the offering.
SEC Charges Against KIK
The regulators charged Kik with violating the registration requirements of Section 5 of the Securities Act of 1933. For the violations, the SEC seeks a permanent injunction, disgorgement plus interest, and a penalty.
Last week, Stmarket.co reported that Kik started a fundraising campaign seeded at $5 million to help the firm contest the lawsuit against the SEC.