A US district judge granted the SEC motion for summary judgment, agreeing that Kik’s ICO was an unregistered securities offering
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On Wednesday, US District Court Judge Alvin Hellerstein granted the US Securities and Exchange Commission (SEC) a motion for summary judgment against Kik Interactive, a company that the municipality claims has offered digital tokens in violation of US law.
The decision comes more than six months after both sides filed Bitcoin Evolution scam summary judgment motions seeking to close the case without trial. Now, the historic civil case is one step closer to its inevitable conclusion: the penalties.
Kik is a Canadian company with a messaging application of the same name. She saw the creation of her own cryptomeda, Kin, as a way to monetize the use of the application.
Kik sold $50 million in Kin tokens from June to September 2017 as part of a private pre-sale to 50 investors. As part of this „Simple Agreement for Future Tokens“ (SAFT), the investors understood that they were getting a discount. They explicitly agreed that they were buying a security.
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Later, in September, Kik held a public sale of the token from which it raised a further US$49.2 million.
When Kin was announced, the SEC had not yet created rules to regulate cryptomorphs like this. The US government agency’s DAO report, which set some basic guidelines for when token offerings could be considered securities, was published in July 2017, when Kik was beginning its sales.
Two years later, the SEC accused Kik of violating Section 5 of the Securities Act – she had offered and sold securities in the United States without having the record to do so.
The judge agreed, although he noted that there was little judicial precedent to guide him.
The crucial point in the case was whether the sale met the Howey Test, a parameter almost a century ago for identifying a security – there must be „i) an investment of money ii) in a joint venture iii) with profits to be derived exclusively from the efforts of others. ”
Although Kik and SEC agreed that the money was invested, they disagreed on parts two and three.
In terms of a joint venture, Judge Hellerstein wrote in his summary judgment order: „Kik has established a joint venture. Kik deposited the funds in a single bank account. Kik used the funds for its operations, including building the digital ecosystem it promoted“.
As for part three, there must be an expectation of profits. Judge Hellerstein again said there was, in the words of Kik’s CEO Ted Livingston, against him: „In public statements and at public events promoting Kin, Kik exalted Kin’s profit potential. Kik’s CEO explained the role of supply and demand in generating value for Kin. ”
The trial does not close the case, but stipulates that „the parties will jointly submit a proposal for a precautionary and monetary protection ruling“ by 20 October.