Victor Ugochukwu · Dec 14, 2020 . 5min read
Court Judge affirms SEC’s rule against Kik, says latter’s 2017 ICO violates Securities Act
Judge stated that Kik's ICO which saw US investors contributing $55 million violates its Securities Law and must be held to account.
By Victor Ugochukwu · Oct 1, 2020 . 6min read
In what appears to be a landmark ruling and another win for SEC, Judge Alvin Hellerstein has affirmed SEC’s rule against Kik saying the latter’s 2017 ICO constitutes a violation of the United States Securities Act.
Judge Alvin Hellerstein stated this in a September 30 summary judgement making the case that Kik, a Canadian tech company’s $100 million ICO fails the Howey test. Hence, the US contributors (investors) in the ICO expected to make a reasonable profit. And by that, Kik token purchased are therefore securities. The District Court Judge’s said
“In public statements and at public events promoting Kin, Kik extolled Kin’s profit-making potential. Kik’s CEO explained the role of supply and demand in driving the value of Kin: Kik was offering only a limited supply of Kin, so as demand increased, the value of Kin would increase.”
Kik’s executive and founder, Ted Livingstone had vehemently rejected the SEC’s characterization of its ICO. He vowed to challenge SEC in court and possibly win. Back then in September 2019 when SEC came after it for violating its security laws, Livingstone said
“We have to keep going. Until that’s it, we don’t have a dollar left, a person left. We will keep going no matter how hard it is,”
This summary judgement by the Judge is, therefore, a huge setback and signal to others whom the SEC may still go after. It’s equally important to note that the tech company shutdown its Kik app to focus on its KIN cryptocurrency development. This came just days after the SEC came after it in September last year. Citing this in his summary judgement, Judge Alvin accused Kik of trying to hide its losses and throw off scents from it.
Judge mandates the SEC and Kik to submit a proposed judgment before October 20 jointly.
Both the SEC will need to come together to submit proposed judgement for injunctive and monetary relief. However, it is not clear whether Kik will be asked to refund US investors who bought $55 million worth of KIN tokens. Also, experts do not expect SEC to go soft on Kik because the latter challenged the regulator stance on its ICO.
Moreso, this ruling is an indication that regulators may still axe many other ICOs of 2017, which targeted US investors. The SEC keeps on a winning streak; Telegram ruling also comes to mind. Therefore, there’s no indication as it may not win against others if it decides to drop the hammer on them.
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