After a year and a half of investigation, the SEC started work on Kik.

– The US Securities and Exchange Commission (SEC) sued Kik Interactive Inc. (Kik) for selling "illegal securities" to US citizens. -SEC conducted a one-and-a-half-year investigation into Kik. Most of the indictments submitted by the SEC came from Kik's internal mail, social networking posts, and Kik's promotional videos on Youtube. "- If you have not answered the SEC before, then the SEC can only approach you in his way.

-Kik issued the cryptocurrency Kin before the SEC released The DAO's investigation report, but this does not mean that the SEC will not hesitate.

-Kik seized the barbaric growth of the blockchain industry, never published its financial statements, did not inform investors that the company was in a loss state, did not announce Kik's current user base, and did not talk about whether Kin is compliant. However, these currency circles have become accustomed to avoiding it. As can be seen from this case, it does not mean that the regulator will turn a blind eye to this.

Recently, the US Securities and Exchange Commission (SEC) sued Kik Interactive Inc. (Kik) for selling "illegal securities" to US citizens.

The SEC said that when Kik issued the cryptocurrency Kin, it was on the verge of bankruptcy, and the decision to issue the cryptocurrency Kin was just a matter of expediency that they came up with in the 2017 blockchain. The SEC also stated in public:

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“There is no conflict between innovation and compliance with federal securities laws.”

For the SEC allegations, Kik CEO, Ted Livingston responded:

"We have long anticipated that we will be targeted by the regulatory authorities. We will fight for the future of cryptocurrency, and we hope that through this case, it is clear that the securities law should not apply to cryptocurrencies with thousands of users."

He added: "More and more users are joining Kin's ecology. We firmly believe that Kin will become one of the most widely circulated cryptocurrencies in the world. Even if the SEC hits us hard, it will not affect Kin in the market. Application, circulation and features."

This is another contest between rights and money after the New York State Attorney General’s company sued the cryptocurrency exchange Bitfinex and the stable currency USDT publisher Tether. At the same time, this is the first time the SEC has filed a cryptocurrency issuer in the federal court for “unregistered as a security and not granted immunity”.

Lawyers Stephen Palley and Nelson M. Rosario commented in The Block:

"It's worth noting that the 49-page indictment filed by the SEC comes mostly from Kik's internal mail, social networking posts, and Kik's promotional videos on Youtube."

It is not yet possible to determine whether this case is a landmark warning of the SEC tightening cryptocurrency policy. Before deciding to file a lawsuit, the SEC conducted a one-and-a-half-year investigation into Kik, and the attitude of Bitfinex and Tether not actively cooperating with the New York State prosecutors was similar. Kik did not agree with the SEC's negotiations, and also showed a pair of " You have to tell me to tell me.

Stephen Palley and Nelson M. Rosario stated:

"We don't think the SEC will sue all crypto-investment issuers that violate securities laws. An experienced defense lawyer will usually tell the defendant that if you don't care about the SEC before, the SEC can only approach you in his way."

Account after the fall

According to Kin's white paper, Kin is an encrypted asset circulating in the Kik chat software ecosystem. Users can acquire Kin through planning, content creation and business, and then purchase the encrypted assets in the Kik ecosystem to purchase services, products, and so on. And the white paper clearly states: “ Like other cryptocurrencies, Kin is interchangeable, transferable, and can be traded on cryptocurrency exchanges for other cryptographic assets such as Bitcoin, Ethereum or French.”

The SEC released The DAO's Survey Report on July 25, 2017, which states that individuals or organizations that finance through distributed technology or blockchain are subject to US federal securities laws and adopt appropriate procedures to obtain compliance eligibility. . Fortunately, Kik has crowdfunded the cryptocurrency Kin about seven weeks before the release of The DAO's investigation report.

But the temporary fortunes did not allow Kik to escape the SEC investigation. According to the SEC's indictment, even if Kik issued the cryptocurrency Kin before the release of TheDAO's investigation report, it does not mean that the SEC will not hesitate. One of Kik's consultants also reminded them that Kik crowdfunding has potential legal risks and needs to be registered with the SEC. Crowdfunding unregistered securities is illegal in the United States.

At that time, the Kik team did not put the words of the consultants on their minds, and they did not care about compliance and non-compliance, but they were afraid to miss the ICO "flash". In fact, the Kik team was also scrupulous. After the SEC released the TheDAO report, Kik immediately found the Ontario Securities Commission (OSC) to issue a “securities” judgment on the issued Kin. In September, OSC staff responded that Kin was a security. Therefore, Kik did not conduct public offerings in Canada, but did not prohibit US citizens from participating in the public offering.

The SEC wrote in the indictment: "Kik did not have similar talks and negotiations with the SEC. There was no registration for issuing securities in the United States, and no US citizens were allowed to subscribe for Kin." Perhaps Kik faces both US and Canadian law. The face, for the time it was buried in the lawsuit buried seeds.

Pig on the tuyere

At the beginning of 2017, ICO began to be popular, giving the peasants a fantasies of wealth, and also gave the startups like Kik a financing dilemma.

According to the Coindesk report, the number of ICO projects before 2017 was only 43. In 2017 alone, the number of ICO projects increased to 434, with a growth rate of 697%.

It is reported that in October 2010, Kik, who was just on the line, attracted 1 million users within 15 days. At that time, Kik, which was popular in the market, attracted many investors and won Tencent's investment of 50 million US dollars in 2015. However, due to poor management of Kik, the company has been in a state of loss for a long time. In addition, instant messaging software on the market has gradually diluted Kik's share. From 2016 to early 2017, Kik was in crisis, the number of users plummeted, and cash flow was insufficient. The Kik team is eager to get rid of the gloves, but no technology company is interested in this "out of breath" instant messaging software.

On February 16, 2017, on Kik's “self-help” board of directors, the board members who saw “ICO Prospects” proposed to use ICO to reverse the shortage of funds at the time. After the meeting, on February 28, 2017, Kik's CEO told employees about a promising cryptographic story in the company's internal mail, that is, through the ICO to tide over the difficulties. He wrote: "The company will sell cryptocurrency investors to pass the certificate to finance. As the market demand increases, the value of the certificate will also increase." He concluded: "Buy today, sell tomorrow, the proceeds will be in the future."

Similarly, on March 24, 2017, Kik's CEO said in an internal mail that Kik will issue a “point” called Kin, if the investor buys at ICO (low suction), and the currency is over time. Selling when the price rises (high throw) will yield revenue. Through the funds raised by ICO, they will be used to build communities and so on. During this period of publicity, Kik is also actively negotiating with the consulting firm located in New York City, doing market research and designing ICO.

On April 10, 2017, the CEO of Kik sent a PPT to the heads of departments before the discussion. This written material highlights the benefits of the previous ICO and predicts that Kik can easily get 100 million through ICO. Dollar financing.

After that, it is the routine that we are familiar with in the blockchain startups, sending white papers, looking for platforms, roadshows, media campaigns, pre-sales, crowdfunding, and exchanges.

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Since the SEC only issued the "TheDAO's Investigation Report" as the US's regulatory guidance for the blockchain field, it did not kill all ICO projects. Therefore, this also gives the lucky Kik a "reasonable excuse" to promote the world. However, every piece of cake that Kik gave to investors at that time was covered by the SEC and recorded.

Kik’s CEO said in an interview with CNBC on May 25, 2017: “You only need to bring people together and provide them with a place to trade a new currency, and you can earn considerable profits. Kik creates A new type of cryptocurrency is profitable. Once more and more people trade this cryptocurrency, its value will increase, and the value of the crypto assets we hold will increase." At the same time, the CEO of Kik often The public exaggerated the success of Kik's instant messaging social software, and said that based on Kik's huge user base, it will stimulate the market demand for Kin, even if its value grows. This and the release of BTT by the currency marketing master Sun Yuchen at the beginning of this year, the claim that BT and its more than one billion global installers have officially become part of the wavefield ecology, are "familiar taste, familiar formula."

The Kik team also often circumvents important information by exaggerating the success of Kik's social software and sketching Kin's vision. According to the SEC's indictment, Kik never published its financial statements, did not inform investors that the company was in a state of loss, did not publish Kik's current user base, and did not talk about whether Kin is compliant. However, these currency circles have become accustomed to avoiding it. As can be seen from this case, it does not mean that the regulator will turn a blind eye to this.

During the roadshow of the Kik team, the demand for other cryptocurrencies increased substantially. Potential users interested in cryptocurrency investments found that the value of cryptocurrencies such as Bitcoin was growing, and early investors gained considerable The rate of return, at that time, ICO entered a fever, Kik also seized the opportunity, with the appreciation of the cryptocurrency as an example to persuade hesitant, potential investors to invest in Kin.

They also painted a big pie for investors to "get rich overnight." On June 28, 2017, in the “Bitcoin offline activity” in San Francisco, Kik’s CEO used the Internet bubble analogy. “I think ICO is like the Internet age. In the state of barbarism, bad money drives out good money, early investment. Or earn or lose, but when the market bubble is squeezed out, good companies will stand out. I think 90% of ICO projects will eventually return to zero… But we have a good project here, our team is trying to go To ensure fairness and justice, we will do our utmost to do everything we can to make the success of what we do and make everyone profitable."

Just as the current smash hit, but the name is greater than the real BTT, just add the token incentive layer to the original BT protocol. When Kik built the so-called ecology, he only found an excuse for issuing Ken to deal with the regulatory authorities.

In June 2017, a management of Kik explained in its internal letter the only purpose of creating a special electronic expression system in software: compliance. In another design theory of creating "encrypted stickers" received by Kik employees, the management mentioned: "In fact, this system is not important at all. Its role is not to serve the users of real money investment, but to please Our regulatory agency."

The contest between Kik and the SEC is deadlocked. In the end, the SEC used the Kin issued by Kik as an example to explain the DAO report again and impose a heavy fine on Kik. Kik can tell a "complete" story in court. The ending is unknown. However, judging from the evidence provided by the current SEC, the currency circle can no longer be "savagely grown" on the grounds of "innovation". After all, there is no conflict between innovation and compliance.

Author: David

Source: Finance and Economics Network on Finance

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