A judge has ruled that the $100 million ICO conducted by Canadian messenger platform Kik in 2017 violated federal securities laws.
U.S. District Judge Alvin Kellerstein has sided with the U.S. Securities and Exchange Commission (SEC), ruling that Canadian company Kik’s $100 million initial currency offering (ICO) violated federal securities laws.
On 30 September, Judge Kellerstein responded to both parties‘ requests for a summary judgment, ruling that Kik’s 2017 sale of tokens met the definition of a securities issue under the Howey test, as ICO participants had a reasonable expectation of profit.
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„In public statements and at public events promoting Kin, Kik extolled Kin’s profit potential. Kik’s CEO explained the role of supply and demand in driving the value of Kin: Kik was offering only a limited supply of Kin, so as demand increased, the value of Kin would rise.
The judge noted the unique nature of the case, noting that it had no „direct precedent“ to inform his determination due to the innovative nature of distributed general ledger technologies.
After analyzing the statements of Kik’s executive and the company’s business model, Judge Kellerstein compared Kik’s offer to a „joint venture,“ saying that the success of the company’s digital ecosystem „drove demand for [Kik’s token] and therefore dictated investor returns.
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Kellerstein’s order requires the SEC and Kik to jointly submit a proposed judgment for interim and monetary relief by October 20.
The SEC filed its complaint against Kik in June 2019, arguing that the company violated securities laws by selling USD 55 million KIN tokens to US investors in 2017 (and the rest to foreign investors).
The SEC described the „pivot“ of Kik’s digital currency as an opportunistic offer to turn the financial tide after losing money from its main messaging product for many years.
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An October 30 statement by Kik states that the company „continues to believe that the public sale of Kin was that of a functional currency and not a sale of securities“.
„While this is a setback for Kik, this decision does not affect the Kin Foundation, the Token Kin, and the growing ecosystem of developers that make Kin the most widely used crypto-currency by popular consumers,“ the firm added.