The SEC Drops the Hammer of Justice on Kik

The Securities and Exchange Commission has just issued a statement in and sued Kik Interactive Inc. for “conducting an illegal $100 million securities offering of digital tokens. The SEC charges that Kik sold the tokens to U.S. investors without registering their offer and sale as required by the U.S. securities laws”.

The SEC’s complaint against Kik is the fact that the company was not profitable, was running at a loss and would essentially experiment with a new type of product with the new offering. Kin tokens were sold in different tranches to both wealthy and public investors, the latter of which would find themselves underwater.

Furthermore, due to it being phrased or marketed as “an investment opportunity” instead of the purchase of utility tokens that could be used for services or goods on the Kik platform, the SEC alleges that Kik had an obligation to inform investors about what they were buying into.

According to the SEC “Kik allegedly told investors that rising demand would drive up the value of Kin, and that Kik would undertake crucial work to spur that demand, including by incorporating the tokens into its messaging app, creating a new Kin transaction service, and building a system to reward other companies that adopt Kin”.

Yet, this would not be so. “At the time Kik offered and sold the tokens, the SEC alleges these services and systems did not exist and there was nothing to purchase using Kin”.

This will be a landmark case as it will be presented against one of the more legitimate and venture capital backed startups within the sector, helping to clarify further what constitutes a legitimate utility token and offering.

Kik Interactive and Funding
Kik Messenger, founded in 2009 and created by Kik Interactive, is well regarded for its anonymity-based system. The startup was funded by prominent private capital firms such as Union Square Ventures and had more than 250 million users as of July 2016.

Kik Interactive raised in excess of $80 million over several rounds.

The company then raised more than a $100 million in an Initial Coin Offering in 2017.

This last round of creative financing would be a virtual thorn for the messaging company.

First, it was perceived to be controversial among the chattering class and the cryptorati. Second, it would invite potential issues from SEC.

How Kik Differs from The Rest
Kik has already gotten out in front of the issue through an appeal to Defend Crypto, allowing the crypto community to help stand with the firm against the SEC. The company differs from many other projects who have raised crypto funds by having a working product and being able to potentially integrate tokens as a natural evolution of the product. As such, the company may have the foundation for a good defense.

Get your popcorn ready, this one should be one to watch.