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The United States Securities and Exchange Commission (SEC) has sued Kik Interactive, the company behind the chat platform Kik, for conducting an illegal $100 million securities offering of digital tokens in 2017.
The SEC alleges that the company had predicted to run out of money in 2017 and sought to pivot to a new business, which was funded through the token sale.
“Kik sold its “Kin” tokens to the public, and at a discounted price to wealthy purchasers, raising more than $55 million from U.S. investors,” the SEC said.
In its complaint, the SEC alleges that Kik marketed the Kin tokens as an investment opportunity, telling investors that rising demand would push the value of Kin higher. To boost this demand, the company allegedly said that it would “undertake crucial work” such as incorporating the tokens into its messaging app, creating a new Kin transaction service, and building a system to reward other companies that adopt Kin.
“At the time Kik offered and sold the tokens, the SEC alleges these services and systems did not exist and there was nothing to purchase using Kin,” the SEC noted.
Importantly, the SEC has alleged that the Kin offering involved securities transactions, and said that the company was required to comply with the registration requirements of the U.S. securities laws.
“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.
The regulator is seeking a permanent injunction, disgorgement plus interest, and a penalty.
Kik Responds
The Kin Foundation, which oversees the Kin token, has already initiated a campaign to take on the SEC. Last month, it announced that it is setting aside $5 million with Coinbase for funding a potential legal battle with the regulator. ShapeShift, Arrington XRP Capital, Messari, and Fight for the Future have come forward to support Kin in this initiative.
Commenting on the SEC’s recent action, Kik's CEO, Ted Livingston, said that they were already expecting such enforcement action from the SEC for quite some time. He said that the SEC's complaint is a “highly selective and grossly misleading picture” of the facts and circumstances surrounding the 2017 pre-sale and token distribution event.
“We welcome the opportunity to fight for the future of crypto in the United States. We hope this case will make it clear that the securities laws should not be applied to a currency used by millions of people in dozens of apps,” he said.
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