Kik loses legal battle against SEC over its $100 million ICO


In his ruling, Judge Hellerstein noted that proving a violation of Section 5 of the Securities Act requires establishing three prima facie elements:

  1. That the defendant directly or indirectly sold or offered to sell securities;
  2. that no registration statement was in effect for the subject securities; and
  3. that interstate means were used in connection with the offer or sale

According to Judge Hellerstein, both the SEC and Kik agree that all three prima facie elements are met.  The only disputed issue with respect to the sale of Kin to the public during the Token Distribution Event (TDE) was whether it was a sale of a “security.”

Judge Hellerstein explained that the definition of “security” under Section 2(a)(l) of the Securities Act includes an “investment contract.” He added that courts rely on the test set forth in SEC vs. W.J. Howey Co. to determine what constitutes an investment contract.

Signup for the USA Herald exclusive Newsletter

In the SEC vs. Howey, “An investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party,” as quoted by Judge Hellerstein in his ruling.