The Securities and Exchange Commission (SEC) commenced a lawsuit on June 4th against Kik Interactive Inc. for allegedly conducting an illegal $100 million securities offering of digital tokens. Kik has been in the limelight for years due to its popular online messaging application. The SEC charges that Kik sold the tokens to U.S. investors without registering their offer and sale.
After losing money for years with its online-messaging application, Kik raised more than $55 million from U.S. investors by selling a digital token called “Kin” without the proper disclosures.
The SEC complaint further alleges that Kik sold its “Kin” tokens to the public, and at a discounted price to wealthy purchasers. The agency is seeking unspecified monetary penalties.
Fred Wilson Defends Kik
Noted crypto investor Fred Wilson has been active in defending Kik’s activities. He notes in a blog post that in reference to the SEC:
“They cannot seem to understand that not all of these assets are securities, they cannot seem to understand that most are commodities, currencies, or utilities like frequent flyer miles. They cannot understand that crypto tokens are unlike any assets that have come before them and that crypto tokens need new regulatory structures.”
Frankenstein Monsters for Capital Raising
In addition, Wilson also took aim at the perceived lack of clarification of regulations. Many startup companies report difficulty understanding SEC regulations. Wilson states that when it comes to SEC regulatory enforcement:
“They cannot understand that their unwillingness to come up with new rules paired with their “regulate by enforcement” strategy is hurting the crypto sector, pushing it offshore, and is causing most of the new projects to raise capital outside of the US and/or put together legal structures that look like Frankenstein monsters”
Kin on the Defense
Kin has launched DefendCrypto.org which is a crowdfunding effort to fight the SEC in court. The website is gaining attention from crypto and blockchain enthusiasts. This stems from frustration at the perception at securities regulations.
The Impact of the Lawsuit
The SEC-Kik lawsuit can be viewed as an isolated case against one company. However for crypto and blockchain technology companies, the lawsuit against Kik raises huge concerns. It is one of the highest profile SEC cases targeting a company for not registering a securities offering. The agency recently introduced a controversial blockchain framework to help analyze whether a digital asset is offered and sold as an investment contract.
Furthermore, it also drives home Fred Wilson’s argument for off shore activity. More start-up companies operating in the crypto and blockchain realm are looking at off-shore incorporation. Therefore, places like Bermuda are quickly becoming the destination of choice for start-ups. In turn, increasing anxiety is leading startups to reevaluate the legality of any fundraising activities.