Last Wednesday, Canadian instant messaging application company Kik launched a cryptocurrency crowdfunding campaign to support its two-year struggle with the US Securities and Exchange Commission (SEC).
Kik founder Ted Livingston said at the time that they not only hoped to support kik through this fundraising, but also hoped to change the Howey test rules to benefit all cryptocurrency projects that had the same experience.
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Jake Chervinsky, a US law enforcement defense and securities litigation attorney, believes that this incident will be the most important event in the 2019 cryptographic securities legal event, because the SEC will have to prove in court that digital tokens are marketable securities.
On June 4, local time, the SEC issued a press release announcing a formal lawsuit against Kik, alleging that it illegally sold securities tokens to US investors. This is the first time that the SEC has filed a lawsuit against the cryptocurrency project party for the securities law. Therefore, this case has also become the focus of the community. How will the SEC regulate the US cryptocurrency ecology in the future? Where will the US cryptocurrency company go? The results of this case are likely to tell us the answer.
The following is the full text of the press release issued by the SEC:
The US Securities and Exchange Commission (SEC) today (June 4, local time) sued Kik Interactive Inc. for illegally issuing $100 million worth of digital token securities. The SEC alleges that Kik did not register the issuance and sale of tokens in accordance with US securities laws when selling tokens to US investors.
As the SEC alleged in the indictment, Kik's only product, the online messaging application, has been losing money for a year, and the company's management has made internal predictions that the company will run out of funds in 2017. In early 2017, the company tried to turn to a new type of business, financing it by selling 1 trillion digital tokens. Kik sold the Kin token to the public and sold it to wealthy buyers at a discounted price, raising more than $55 million from US investors. The indictment pointed out that the recent transaction price of the Kin token is about half of the price paid by public investors in the offering.
The indictment further alleged that Kik marketed the Kin token as an investment opportunity. It is reported that Kik told investors that rising demand will push up the value of Kin. Kik will undertake important tasks to stimulate demand, including combining tokens with their communication applications, creating a brand new Kin trading service, and building a system to reward other adoptions. Kin's company. When Kik issued and sold tokens, the SEC said that these services and systems did not exist, and that nothing could be used by Kin. Kik also claims that it will retain $3 trillion of Kin tokens, and that Kin tokens will immediately trade in the secondary market, and Kik will work with investors to profit from their demand growth. The issuance of Kin involves securities trading and Kik is required to comply with the registration requirements of the US Securities Act.
Steven Peikin, co-director of the SEC Enforcement Department, stated:
“We allege that Kik sold $100 million worth of securities without registration or supply, depriving investors of the legal right to information and preventing investors from making informed investment decisions. The company is innovating and complying with federal securities. It is impossible to choose between the two."
Robert A. Cohen, head of the Network Group of the Law Enforcement Department, said:
“Kik tells investors that they can make a profit from their job of creating a digital ecosystem. The expected profit generated by the work of others is a sign that securities issuance must comply with federal securities laws. ”
The SEC alleged that Kik Interactive Inc. violated the registration requirements of Section 5 of the Securities Act of 1933. The SEC is seeking permanent injunctions, rate hikes and fines. The SEC has previously accused a number of issuers of violating these regulations, which have now been resolved, including Munchee Inc., Gladius Network LLC, Paragon Coin Inc. and Carrier EQ Inc. d/b/a Airfox.
Brent Mitchell, Jeff Leasure, and James Murtha of the SEC's Complex Financial Instruments division were responsible for the SEC's investigation, and Mr. Cohen and the department's deputy director, Reid Muoio, oversaw the investigation. The lawsuit will be handled by David Mendel and Stephan Schlegelmilch. The SEC is very grateful to the (Canada) Ontario Securities Commission for their assistance.