Kik Awakes the SEC Monster, Regulator Strikes Back Regarding Kin’s Crypto Token ICO Fundraiser

The Securities and Exchange Commission (SEC) has responded decisively to a suit by the KiK platform. The regulatory body announced that it would slap the company with a charge of “illegal” sale of unregistered securities.

The crypto messaging platform caused a stir recently when it announced a crowdfunding effort to take on the SEC. KiK essentially wanted the courts to take the SEC to task over the Howey test for determining securities. This effort, under the moniker ‘defend crypto’ was a bold move against the all-powerful regulator.

Well, the SEC has decided to also go on the offensive.  This is undoubtedly significant as such a shift in attitude can have sweeping implications on cryptocurrency in entirety.

Kik And the Securities Question

KiK did conduct an ICO in 2017 and had the sale of KIN tokens through a crowdsale. Apparently, KiK pitched Kin relentlessly and touted the prospect of a digital ecosystem.

This would according to the platform developers enable early Kin investors to ‘make a ton of money.’ The platform therefore raised about $100 million in cash and ether. Of this amount, a significant $55 million came from American investors who are in the jurisdiction of the SEC.

At the moment, Kin is trading on unregulated trading platforms at about half the ICO value. KiK is definitely not an outright fraudulent entity but the reality is that investors have lost millions of dollars since inception. This is why the SEC contends that KiK is a security and the company is operating in violation of American securities laws.

The Position of the SEC

The SEC has responded strongly to the lawsuit. This has potentially lethal ramifications for many crypto platforms with the same operating model as KiK. The regulatory body of Enforcement essentially through Steven Peikin, Co-Director of the SEC’s Division explained its latest move as follows:

 “By selling $100 million in securities without registering the offers or sales, we allege that KiK deprived investors of information to which they were legally entitled, and prevented investors from making informed investment decisions…Companies do not face a binary choice between innovation and compliance with the federal securities laws.”

The SEC is, therefore, taking KiK to task over the offer of future profits based on the efforts of others. This is a position the SEC can be resolute on now as the KiK suit has burned bridges on a possible compromise.

Effect of The SEC Getting Tougher

This battle will obviously play in American circuit and appeals courts. The best case scenario definitely is the courts declaring that digital tokens are not securities. This is an unlikely outcome and even in the event that KiK wins the SEC has plenty of time to bring suit against other players after this case is resolved.

The bone of contention is section 5 of the USA Exchange Act. This is something KiK must pursue to the appeal courts stage because that decision can be more binding. In the event that the SEC wins though, the regulator will use it to leverage settlements from anyone else who might be liable.

At the moment, the SEC will probably limit its focus to fraudulent ICOs. Other possible targets for the regulator are exchanges playing regulatory arbitrage and traders manipulating markets. This all means that everyone in the crypto market must strap up and be ready for an emboldened SEC.

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