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US SEC Charges Kik for its $100 Million ICO Violating Securities Laws

Abstract : Kik told investors they could expect profits from its effort to create a digital ecosystem. Future profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities law, said SEC official.

ChainDD
ChainDD

Jun 05

June 5 (ChainDD) The US Securities and Exchange Commission (SEC) announced on June 4 EST that it sued Canada-based  instant messaging platform operator Kik Interactive for illegally conducting a $100 million securities offering of digital tokens. The SEC charges Kik sold its token Kin to US investors without registering offering and sales with SEC in accordance with the US securities laws.

 

SEC said Kik promoted its token as an investment opportunity and claimed rising demand would boost the value of Kin and Kik would do critical works to stimulate demand such as creating new Kin transaction services. But Kin’s current market price is only half of the value during its initial coin offering (ICO).

 

“Kik told investors they could expect profits from its effort to create a digital ecosystem. Future profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities law,” commented Robert A. Cohen, Chief of the SEC Enforcement Division’s Cyber Unit.   

 

Kik’s CEO Ted Livingston announced his company started a cryptocurrency fundraising targeting $5 million to prepare lawsuit with SEC. The effort is to challenge Howey Test, a framework for SEC to determine whether a token is a security, and encourage SEC reconsider the standard.

 

ChainDD noted SEC official recently expressed views that positive for ICO. At the end of last May,  William Hinman, director of the SEC Division of Corporation Finance, said if a company initially offered coin only for funding without any relationship with use case, its token seems like a security. While if it demonstrated to SEC years later its token has some utility aspects, SEC also may be willing to give the no-action relief. “Digital assets may evolve into an instrument that no longer needs to be regulated as such,” he stated.

 

According to ChainDD’s previous news, Hinman’s division last April issued a no-action letter to Turnkey Jet (TKJ)’s initial coin offering (ICO) and judged its token derived from the ICO is an utility token, instead of security, so TKJ’s offering and sales don’t need to be registered with SEC. This is SEC’s first no-action letter in response to ICO.

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