The United States Securities and Exchange Commission (SEC) has sought early summary judgment in its case against messaging platform Kik, over its $100 million KIN initial coin offering (ICO) in 2017.
The legal battle between the SEC and Kik started back in June 2019 when the Commission filed a lawsuit claiming the company’s ICO involved issuance of securities.
Kik denies the allegations, saying the ICO comprises currency and not security, however, the commission claims to hold “undisputed evidence” to support its claims.
“Kik’s 2017 offer and sale of Kin was an offer and sale of investment contracts to the public, which was not registered with the SEC, and for which there was no exemption from registration under the act,” said the SEC.
During the ICO in 2017, the messaging company sold around 512 billion tokens to investors outside of Canada and secured $100 million. According to the SEC, Kik openly informed buyers that KIN prices would rise due to the increasing demand for the tokens, comprising a breach of the Securities Act.
Additionally, the commission pointed out that Kik representatives stated that it would “undertake crucial work to spur that demand.”
The SEC states that illicit issuance of securities to investors “deprived thousands of investors the protections and required disclosures under the federal securities laws.”
The commission’s early judgment summary involves multiple charges at Kik. In the first place, the messaging company took part in the trading of investment contracts to the public, according to the summary.
The documentation notes that Kik did this as a non-registered firm, even though they didn’t receive an exemption from registration by the commission. Kik denied these accusations.
SEC is requesting a final court order against the Canadian messaging platform, as well as penalties, and return of funds raised during the ICO, which the commission describes as “ill-gotten gains”
The commission claims that the true motivation behind Kik’s “pivot” into digital token issuance was years of losses suffered from its free messaging platform.
The documentation has further aggravated Kik’s economic difficulties, as the company announced it would close its free messaging service and focus on the development of the KIN token in September 2019.
At the time, Kik’s CEO Ted Livingston published a blog post noting that the reason behind Kik’s decisions to shut down its messaging service is that the company must manage resources in a legal case against the United States Securities and Exchange Commission (SEC).
The following month, Kik said it is “here to stay”, and announced that the Santa Monica-based holding company MediaLab will acquire its messaging platform. MediaLab is also the owner of the messaging service Whisper, as well as the music sharing platform DatPiff.
Kik is just one of the companies that are currently having legal issues with the SEC. For instance, the regulator has recently settled individual cases against startups Airfox and Paragon.
Both companies secured over $10 million each in ICO’s that were not registered. The commission’s co-director of enforcement Stephanie Avakian said that the regulators were “clear” about the fact that all companies must comply with the regulations.