Despite the fact that Bitcoin and crypto assets are still down from their all-time highs, regulators the world over are more active than ever before in regulating this budding industry.
Earlier this year, the U.S. Securities and Exchange Commission (SEC), the financial regulators presiding over most crypto projects with their own tokens, aimed its sights at initial coin offerings (ICOs).
Presumably due to its size and market impact, the SEC chose social media company Kik’s KIN ICO to target. But it seems that the Canadian crypto-friendly firm isn’t going down without a fight, releasing an impassioned response in the form of a 100-page legal dispute.
Kik Sued by SEC
For months now, Kik and the broader crypto community have been anticipating legal action. NewsBTC reported six months back that Ted Livingston, the chief executive of the firm, explained that his team is planning on fighting the SEC regarding its $100 million token sale that was not registered with the authority.
In a letter, Kik’s lawyer even called the financial regulator’s approach to cryptocurrencies “flawed,” writing:
“Bringing the proposed enforcement action against Kik and the foundation would amount to doubling down on a deeply flawed regulatory and enforcement approach.”
Despite this strong stance, the SEC took action anyway. In a press release published in early-June, the SEC revealed that it would be suing Kik for breaking securities laws.
Robert Cohen, the Chief of the Enforcement Division’s Cyber Unit, noted that since the firm explicitly told investors that they could post a gain on their KIN tokens, the crypto assets could be classified as securities:
“Future profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities laws.”
Kik was quick to react. The week prior to the press release’s publishing, it created DefendCrypto, a fund meant to ensure that Kik could correctly fight the SEC to set a new legal precedent for ICOs and the broader digital asset space. The fund hasn’t gained that much traction yet, sporting a pool of funds mostly sourced from Kik itself.
Hands Thrown Over KIN Crypto
Regardless, Kik has continued to fight for itself and the crypto and blockchain industry. Today, the firm released a legal response over 100 pages long to rebut the SEC’s complaint.
Katherine Wu, formerly of industry analytics and data provider Messari, broke down and annotated the report.
While the piece is quite long, there are a few key takeaways put forth by Kik’s team of lawyers and technologists: Kik did not sell digital securities, and thus did not violate any pertinent federal laws; the crypto isn’t the firm’s attempt to save itself from going under; KIN isn’t the only company foraying into social media digital assets, but is the first; the SEC is ignoring certain statements that would help Kik’s case; the SEC is operating on a “flawed factual and legal premise”.
if Kik manages to prove that the current system the SEC has in place for targeting cryptocurrency projects is outdated or doesn’t fit digital assets, the regulator will likely need to create a new version of the Howey Test for the industry.
This would be a step in the right direction, as it would set a legal precedent for firms in Kik’s boat to be safe from certain legal risks. This precedent may even spark a newfangled influx of crypto innovation, as the clarity provided by such a victory may push technologists to kickstart their plans to foray into this space.
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