The Securities and Exchange Commission (SEC) filed a lawsuit against Kik Interactive for allegedly conducting an unlawful initial coin offering (ICO) in 2017.
Kik is a private company based in Canada. It is the owner and operator of a mobile messaging app called Kik Messenger.
Allegations against Kik Interactive
In the complaint, the SEC alleged that Kik offered and sold one trillion unregistered digital tokens called Kin from May to September 2017. The ICO was part of its strategy to keep its business operations afloat. The company raised $100 million in funding from investors, who were not aware of its financial problems.
According to the Commission, the company’s action was a violation of the Securities Act of 1993 because its investors did not receive the required disclosures related to the ICO.
Under the law, companies offering and selling securities must provide investors with accurate and sufficient information to allow them to make an informed decision before investing. Companies normally disclose relevant information related to the securities offering in a registration statement with the SEC.
Kik did not file a registration statement regarding its ICO with the SEC. Therefore, its digital token and trading platform are unregistered and illegal.
In a statement, Steven Peikin, Co-Director of the SEC’s Division of Enforcement, said, “By selling $100 million in securities without registering the offers or sales, we allege that Kik deprived investors of information… and prevented investors from making informed investment decisions. Companies do not face a binary choice between innovation and compliance with the federal securities laws.”
The Commission is seeking a final judgment permanently banning Kik from offering and selling digital tokens. It is also requesting the court to order the company to disgorge ill-gotten gains and to pay pre-judgment interest. Additionally, it is asking the court to impose civil monetary penalties against the company.
Kik says SEC’s lawsuit is flawed
In response to the Commission’s enforcement action, Kik CEO Ted Livingston said they “welcome the opportunity to fight for the future of crypto in the United States” They are hoping to clarify “securities laws should not be applied” to a digital currency.
On the other hand, the company General Counsel Eileen Lyon, commented, “For the reasons set forth in our Wells Submission, the SEC’s complaint against Kik is based on a flawed legal theory…We do not believe they will withstand judicial scrutiny.”