Business 28 January 2019Erik Gibbs
Kik messaging app to take the US SEC to court
Kin, the Canadian company behind the popular Kik messaging app, could take the U.S. Securities and Exchange Commission (SEC) to court. According to an article in the Wall Street Journal, the company is being targeted by the SEC over what it claims are violations of the 1934 Securities Exchange Act, asserting that Kin’s initial coin offering (ICO) from 2017 offered unregulated securities. Commissioners are set to rule on whether or not to pursue any action against the company and Kin is ready to fight back in court if necessary.
Kin CEO Ted Livingston recently penned a lengthy Medium post on the Kin vs. SEC battle, asserting that the SEC is completely wrong in its interpretation of the law. He points out, “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.’”
Livingston has a strong basis for his argument. According to the U.S. government, as posted on house.gov website, the 1934 Securities Exchange Act specifically states, “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.”
Kin published an official response (in pdf) to the SEC’s enforcement action last month, stating, “[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 [1933 Securities] Act. Kin was designed, marketed, and offered as a currency to be used as a medium of exchange within a new digital economy.
“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).”
In referencing the 1933 Securities Act, Kin was referring to the act that deals with the registration of new securities issues. The 1934 act governs securities transactions.
If the two go to court, any outcome could have lasting effects on the crypto space. If the SEC wins, the crypto industry could become even more suppressed in the U.S. than it already is. If Kin wins, it could lead to a whole new era of ICOs being introduced.
Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.
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