Kik Interactive Inc., A Canadian messaging app company, based out of Ontario, is considering to file a case against the SEC over a probable enforcement action against Kik’s initial coin offering (ICO). Kik launched its ICO, the Kin in 2017 which is the company’s exclusive cryptocurrency
A representative from the company stated, ”We are unsure of how the Commission will vote, but we believe that any enforcement action against Kik, Kin, and the foundation would be detrimental to the entire cryptocurrency industry.”
Ted Livingston, the CEO of Kik, revealed about his company’s approaching legal clash with the Washington D.C., to the Wall Street Journal. He also posted about it on his Medium blog.
He stated “This comes after SEC Chair Jay Clayton said, “I believe every ICO I’ve seen is a security.” That includes almost every cryptocurrency, from Ethereum on down. This is the thing that everyone in the industry is dealing with, but nobody wants to talk about. For all of us to be able to continue hiring, innovating, and competing, we need to change that.”
He further added “This situation is not unique to Kik. There are dozens of projects at a similar point with the SEC. We all believe that this industry needs regulation, but we also believe that this is not the way to get it.”
Talking about the law, Ted continued “On page 11 of the 1934 Securities Exchange Act, the very act that created the SEC, it explicitly states that the definition of a security “shall not include currency.”
Though Ted might be right about his interpretation of the 1934 Securities Exchange Act, the lawyers tend to differ on the same. Ted stated “The term ‘‘security’’ means any note, stock, treasury stock, security future, security-based swap, bond, debenture, certificate of interest or participation in any profit-sharing agreement… but shall not include currency or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the time of issuance.
He further said “Today you can earn and spend Kin in over 30 apps live in the Google Play and iOS App Stores. Already, hundreds of thousands of people have exchanged Kin for goods and services. Kin is one cryptocurrency that truly is a currency.”
Responding to the SEC’s notice, Kik said: [T]he Staff’s proposed enforcement action against Kik and the Kin Foundation will likewise fail any rigorous analysis of whether offers and sales of Kin amounted to offers or sales of a “security” within the scope of Section 5 of the ’33 Act. Kin was designed, marketed, and offered as a currency to be used as a medium of exchange within a new digital economy.
He continued “This takes it outside the statutory definition of a “security” under the federal securities laws, and gives it a consumptive use that is inconsistent with an investment purpose. Simply put, Kik did not offer or promote Kin as a passive investment opportunity. Doing so would have doomed the project, which could only succeed if Kin purchasers used Kin as a medium of exchange (rather than simply holding it as a passive investment).”
Kik further told in a statement “Our official Wells Response reinforces our position that the Commission will not and cannot demonstrate that Kin is a security. We believed, and still believe, that we were in compliance with the application of federal securities laws to public token sales, even with the limited guidance offered by the Commission.”