Kik Interactive decided to pick a fight with the Securities and Exchange Commission (SEC) and the regulator is hitting back by launching a lawsuit against the Canadian company for allegedly conducting an illegal ICO. The sale was conducted even though the offer and sale were not registered as required by U.S. securities laws.
In a statement the SEC said Kik lost money for years on its only product, an online messaging application. After Kik management supposedly predicted it would run out of money in 2017, the company pivoted to a new business financed by the token sale.
“Kik sold its ‘Kin’ tokens to the public, and at a discounted price to wealthy purchasers, raising more than $55 million from U.S. investors,” the SEC said in a release. “The complaint alleges that Kin tokens traded recently at about half of the value that public investors paid in the offering.”
Kik marketed the sale as an investment opportunity, allegedly telling investors the token’s value would increase in tandem with consumer demand propelled by Kik’s efforts which were to include incorporating the tokens into its messaging app, creating a new transaction service, and building a system which would reward businesses adopting Kin.
“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,” the SEC added. “Kik also allegedly claimed that it would keep three trillion Kin tokens, Kin tokens would immediately trade on secondary markets, and Kik would profit alongside investors from the increased demand that it would foster. The Kin offering involved securities transactions, and Kik was required to comply with the registration requirements of the U.S. securities laws.”
“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,” said Steven Peikin, co-director of the SEC’s Division of Enforcement. “Companies do not face a binary choice between innovation and compliance with the federal securities laws.”
“Kik told investors they could expect profits from its effort to create a digital ecosystem,” said Robert A. Cohen, Chief of the Enforcement Division’s Cyber Unit. “Future profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities laws.”
Note that Kik Interactive is a Canadian company that didn’t conduct an offering at home due clear guidance they received from Canadian regulators that they considered Kin a security.