Kik Interactive’s legal skirmishes with the US Securities and Exchange Commission have escalated, as the SEC goes on the defensive, attempting to refute the legal arguments made by Kik’s lawyers, especially regarding their ‘void for vagueness’ claim.
The question is whether or not the company’s ICO, in which they raised $100 million through the sale of their proprietary cryptocurrency Kin, comes under the regulatory purview of the SEC. Kik’s primary argument is that Kin should not be classified as a security, and that the laws in the US fail to provide any clarity on the subject.
Specifically, the term “investment contract” mentioned in the Securities Act doesn’t provide adequate guidance as to what kind of contract can be called an investment contract.
“Indeed, members of U.S. Congress, academia, and even an SEC Commissioner have publicly and repeatedly criticized the SEC’s failure to provide any guidance or demonstrate any consistency in its application of federal securities laws to cryptocurrency projects. There is ample evidence to show that the SEC has contributed to the confusion in this area by engaging in a pattern of arbitrary enforcement,” a spokesperson from Kik said.
It was developed by Kik Interactive in 2009 by a group of University of Waterloo grads, including present CEO, Ted Livingston.
Kin’s purpose is to provide a proprietary digital currency for the Kik community. It’s a reward used to pay app developers, used in games, and stickers on Kik are rewarded in Kin directly by their users rather than ad revenue.
Kin first launched as an ERC20 token on the Ethereum blockchain. It was designed to act as the primary currency in Kik’s ecosystem, where users could purchase digital goods and serves and ap developers could earn revenue.
- December 2014 – Kik launches Kik Points, a kind of reward points system for Kik users, which ends in March 2017
- September 2017 – Kik raises nearly $100 million in Kin token sale
- June 2019 – Kik is sued by the SEC over the Kin token sale
- September 2019 – Kik announces it will shut down its messaging app in order to focus on fighting the SEC’s lawsuit
- October 2019 – MediaLab agrees to buy Kik Messenger, and preserve Kin
We originally wrote about the Kik Interactive story in June in which we said:
“The SEC contends that Kik should have registered the Kin ICO as a security because it met the definition of an offering under the Howey test. The test relates to Securities and Exchange Commission v. W.J. Howey Co.”
The test is based off of four characteristics:
- a monetary investment
- entry into a common enterprise
- an expectation of profits
- dependent on the efforts of others.
Kin’s counterclaim is that they are one of the most widely used cryptocurrencies in the world, boasting more than a million users having spent or earned their currency. In response to the SEC, Kin claims to have the fifth-highest daily blockchain activity and more transactions per day than Ethereum and Bitcoin, and therefore the coin has been widely adopted, heavily used, and not a security.
Regardless, Kik has since committed $5 million to fight the SEC, and started the Defend Crypto Fund to raise money to help other blockchain organizations defend themselves against the SEC.
We’ll continue to follow this story as it develops.