SEC sues Kik! The US Securities and Exchange Commission (SEC) is suing Kik for allegedly running an unregistered securities sale. The sale under investigation was when Kik launched its Initial Coin Offering (ICO) for its Kin token back in 2017.
The SEC filed yesterday in the Southern District of New York. In its filing, the SEC said that Kik violated Section 5 of the Securities Act of 1933, which requires offerings to be registered.
“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.”
The SEC also alleges that Kik had lost money for years on its one product – an online messaging application. The SEC also states that the company’s management predicted that they would run out of cash in 2017. The losses by Kik averaged about $30 million a year, and attempts to be sold to a larger technology company had failed.
It is with this in mind that the SEC alleges that Kik violated the Securities Act of 1933. In early 2017, Kik pivoted towards a new type of business, one where the sale of one trillion digital tokens would be sold, with discounted tokens sold to wealthy purchasers. This raised more than $55 million dollars from US investors.
The SEC is not alone – the Ontario Securities Commission also believes that Kin appeared to be a security.
Anticipating a crackdown from the SEC, Kik told the Wall Street Journal earlier this year that it planned to take the SEC to court if the federal agency took enforcement action against Kin.
Ted Livingston, Kik’s CEO, said that the company had already spent $5 million dollars engaging with the SEC. Kik then launched a crowdfunding campaign dubbed “Defend Crypto” to support the company against a potential lawsuit.
Kin dropped more than 25% within 2 hours of the lawsuit’s announcement.
Our own Kurt had commentary as well, saying,
“After nearly two years of being criticized for calling *all* ICOS subject to securities regulations, we are finally beginning to see the crackdown that’s been long coming. The real question is: what differentiates KIN from any of the other countless ICO projects? We believe this is just the beginning of a larger crackdown. “