Kik Interactive, the entity behind the Kik messenger platform, plans to challenge an expected enforcement action from US Securities and Exchange Commission (SEC) over the Canada-based firm’s initial coin offering (ICO), the Wall Street Journal reports.
In 2017, Kik launched an ICO, selling nearly US$100 million in “Kin”, a digital token the company says works like a currency on its platform.
The SEC, however, deems Kin an unregistered investment security, according to the Journal.
Jay Clayton, chairman of the financial watchdog, had made it clear in March 2018 that all ICOs constitute securities, and these offerings should be required to be registered with the agency.
Kik, like some others in the cryptocurrency industry, contend that the tokens represent a new kind of asset that shouldn’t be subject to the same rules as stock or bond offerings.
A court battle between Kik and SEC could help determine the scope of the regulator’s authority to tame the ICO market, the Journal said.
Whether an asset is a security right now follows the “Howey Test”. The ruling comes from a 1946 US Supreme Court case that classifies a security as an investment of money in a common enterprise, in which the investor expects profits primarily from others’ efforts.
Kik Interactive CEO Ted Livingston says “there are many reasons why Kin and others do not satisfy the Howey Test,” as the definition of a security “shall not include currency.”
In a Medium blog post, the CEO claimed that Kin is “one cryptocurrency that truly is a currency” as people and developers have exchanged Kin for goods and services in the new ecosystem.
The Canadian firm argues that kin are “utility” tokens rather than security tokens.
Kik’s case, which is to be filed in civil courts, could set a precedent for the nascent crypto ecosystem.
Targeting the abuses and outright fraud in the digital currency industry which raised billions of dollars since 2014, the SEC announced its first civil penalties in November 2018 against crypto founders who failed to register new coin offerings.
It settled cases with crypto startups, which agreed to pay penalties, register their tokens as securities, and file periodic reports with the agency.
Founded in 2009, messaging application Kik is a chat platform popular with US teens, reportedly claiming 300 million registered users and 15 million monthly active users.
Valued at more than US$1 billion, the unicorn startup has raised over US$220 million since founding. The investors include Chinese internet giant Tencent (00700.HK), Pantera Capital and Blockchain Capital, according to Crunchbase.
In September 2017, Kik completed a high-profile US$100 million ICO which, according to the company, drew the participation of over 10,000 backers from 117 countries.
In July 2018, Kik released digital wallet Kinit, its first beta product related to its Kin token after the successful ICO.
At the time of writing, Kin token was trading at US$0.000029, with a market capitalization of US$21.8 million, according to Coinmarketcap. The unit’s price had fallen 97 percent from a peak of US$0.001 hit in January 2018.
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