Kik has no chance of winning this match with the SEC.

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Sending Kik to the SEC and the front of the SEC;

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Screenshot from: Twitter of Mythos Capital founder Ryan Sean Adams

Seeing the combination in this 我 I am like the original author Rayn, the first feeling is not reliable. Because of the careful study, these three "children of the election", which pioneered the currency circle, are quite controversial; for example, Kik, which we are going to talk about today, is not the best choice for the encryption industry to meet the SEC .

The problem is riddled, Kik is also difficult to protect himself.

Recently, the US Securities and Exchange Commission and Kik Interactive Inc. struggled for two years. After the latter refused to admit that it was a securities-based token and raised the funds to resist, the SEC finally could not help but take the shot. On June 4th, US time officially sued the Canadian instant messaging software company on 1C0.

Screenshot from: SEC's indictment against Kik

(https://www.sec.gov/litigation/complaints/2019/comp-pr2019-87.pdf)

After reading the 49-page indictment, the Hash faction roughly extracted the main accusations of the SEC against Kik.

• Unfavorable business, helpless transformation: From 2016 to 2017, Kik faced a financial crisis due to unfavorable operations; after many failed acquisitions, the company rushed to transform in early 2017, trying to fill the funds by selling one trillion Kin tokens. gap.

• Commitment to profitability, incentives for investment: For mid-2017, Kik CEO marketing his token Kin as an investment opportunity on multiple occasions and promised to push up the value of Kin as demand increases; the company is also on social media Many times I have already negotiated with some exchanges. Kin will immediately trade in the secondary market after the issuance… In the SEC's view, this future profit based on the efforts of others is a sign of securities issuance.

• It’s true that securities are not reported: not only that, Kik executives and legal advisers have consulted the Ontario Securities Commission, and after the latter explicitly told them that the tokens they issued were securities, Kik prohibited Canadians from buying Kin publicly. According to the data, the two sides also mentioned the Howe test during the conversation, but Kik did not communicate with the SEC, nor did it restrict the participation of investors in the US during the currency period (although some states were banned).

• Hurry to build apps, just to look compliant: What's more interesting is that in order to make the project look compliant, the tokens it issues are as close as possible to consumer use, and Kik has added new ones to its app before issuing tokens. The cartoon emoticon package function; however, the investor did not know that the feature was not fully developed until the sale of the token, and could not use Kin to purchase.

To put it simply, Kik knows that the tokens he issued are in the securities range and are not registered with the SEC, and attempt to add undeveloped applications to make the tokens appear to be compliant.

Description of the Kik Expression Pack application in the lawsuit

In fact, exaggerating the benefits, concealing the company's financial situation, etc. are all commonplace in the 1C0 market. They are also common reasons for the SEC's allegations of related projects, and they are accurate; for example, they have reached a settlement with the SEC and honestly paid various fines. The cryptocurrency bank AriseBank, the blockchain startup Titanium, etc. are all sued for alleged false propaganda. However, the SEC’s reason for Kik’s lawsuit was not a false propaganda, but accused of not registering the tokens and sales in accordance with the requirements of the Federal Securities Act.

Such allegations involve a key question – whether 1C0 is a security. Although the issue is still very controversial today, from the current evidence presented by the SEC and the earlier "Blockvest LLC's reconsideration incident", it is difficult at this stage to want the court to recognize that Kik is not a security .

But more importantly, Kik did not have enough energy and financial resources to fight the SEC . Typically, such litigation has a five-year effective litigation period; that is, the next SEC will have plenty of time to gather evidence to prove that Kik's token issuance is a securities issue. It is also worth mentioning that Katherine Wu, an independent legal researcher, said in his comments on the lawsuit that Stephan Schlegelmilch and David Mendel, who wrote the complaint, were senior litigators in the department, showing that the SEC attached a high degree of attention to the incident.

※DefendCrypto initiated by Kik has received a joint response from companies such as ShapeShift and Messari; however, Circle and Coinbase, which previously supported Kik, have quietly disappeared from the list (screenshot from: defendcrypto.org)

In contrast, Kik, even though it launched a $5 million encryption crowdfunding campaign through the dedicated website Defend Crypto, Kik wants to fight the SEC for a long time in the case of defending lawyers in such cases. The funds are far from enough. And this may be one of the reasons why most of the earlier sued items were chosen to pay fines or actively register to become a settlement method such as securities.

Whether the lawsuit is successful is not the focus

To be honest, this Kik incident has not made any new progress in terms of evidence or litigation reasons. It is similar to the earlier invoice prosecution case, and the odds are not high; but it does not hinder the market’s attention to this incident because Kik The need to go to court with the SEC, let us focus on the "1C0 is a securities" debate.

As the former US Attorney General’s federal prosecutor Katie Haun issued a message, Kik and the SEC entered the Wells process to allow the latter to consider whether to take the original plan of law enforcement activities, this is done privately and usually indicates that the other party should not file a lawsuit. View. But Kik did not do this, but publicized the response submitted in the process and questioned the SEC positively.

Specifically, the company’s active collaboration with the social entertainment app MadLipz, the online forum platform Tapatalk and other apps early this year highlighted to the SEC that their cryptocurrency “Kin” is a consumer product that focuses on usage; There is no common enterprise between Kin buyers; there is no securities feature for this purpose. This public approach has put pressure on the SEC to a certain extent, urging them to answer positive questions about whether the Howe test is in line with the encryption industry, how to divide which digital currency belongs to securities, etc.; and this is exactly what the market has been waiting for for a long time. The answer .

Note: The Howe test shows that as long as the situation is met, it is regarded as securities: (1) investment funds; (2) common and (3) efforts to obtain profit expectations through others. (Screenshot from: Katie Haun's article)

Although SEC Chairman Jay Clayton publicly claimed that all initial tokens were securities in the past year and took more than 30 enforcement actions against digital asset issuers in the following year; most of the law enforcement projects involved were suspected of fraud, not just This is only the issue of unregistered issues. The SEC then launched the "Digital Assets Product Guide", which attempts to outline its procedures for judging whether digital currency is a regulated investment contract in a straightforward language; but the guide actually splits the Howell test 70 years ago into one. A list of more than 40 reasons. In addition, the new concept of so-called "active participants" introduced at the same time further expanded the scope of the Howell test, even beyond the scope of judicial interpretation of the US Supreme Court.

This means that so far the SEC has not made any clear question about how to divide the digital currency into securities; what is the SEC's attitude towards the industry, and the market is mainly based on guessing. "When we talked with industry insiders, we always talked about 'the SEC thinks', we have to stop living in this fear. We all know that encryption technology is the next big trend, but we brought ourselves on the global stage. The fundamental obstacle, the only way to understand what the SEC thinks is to go to the court," Kik CEO Ted Livingston said in an interview.

SEC statement is the result we want

Therefore, the result of this ruling is not the focus of the market. For supporters and onlookers, it is the key to tempting the SEC's ideas and urging them to make further statements. As Jake Chervinsky, a law enforcement attorney in the United States, expressed his views, this is the most important thing in the world of cryptographic securities in 2019, and is more important than any SEC guidelines or proposed legislation. The SEC has always claimed that digital tokens are marketable securities, but this time they need to prove this in court.

It seems that the lawsuit from the SEC to the federal courts, not the local courts, will undoubtedly bring some transparency to the market. But according to Jay Clayton, the chairman of the department, for the consistent delays in the encryption field and the tough regulatory attitude, the SEC will not easily give a clear definition of division . Back in the history, Jay Clayton at the end of last year has clarified the SEC's strong regulatory attitude toward blockchain, digital assets and token distribution in 2019, and once again stressed that the new technology nature of token distribution has not changed the basic view and must be observed. Securities Law. From this point of view, regulation is imperative in 2019; but now that the field is still in the groping phase, the SEC will not rush to launch the Howe test for cryptocurrency, and for the SEC and most industry insiders, Kik Nor is it the best precedent for testing.

Although the probability of a clear division of standards is low, we can still smell some future trends from the lawsuit . The lawsuit repeatedly emphasized that the absence of actual products and the absence of a decentralized economy is the main reason why Kik is classified as a security. Coupled with the point made by SEC’s Chief Financial Officer, William Hinman, in his speech – as long as the cryptocurrency is “decentralized”, it will not be bound by the SEC’s definition of securities; can we believe that The actual product and the decentralization of the project to a certain extent cannot be defined as securities or regulated by the SEC.

Note: The SEC stated that Kik did not implement a decentralized economy to implement token distribution, and did not ensure that investors could use tokens to purchase goods and services within the app. (Screenshot from: Litigation Book, page 26)

If the SEC can show its attitude towards the above issues in the court, it is a great progress for the encryption industry supervision. At least the items that meet the relevant conditions no longer have to worry about receiving the SEC's subpoena; but want to open the token in the US. New projects issued can also know how to avoid risks.

Anyway, as CNC cryptocurrency show host Ran NeuNer said, "The SEC filed a lawsuit against Kik for cryptocurrency without any harm." And what we can pray is that Kik has enough money and energy to stay even further in this long lawsuit.

Reference material

[1] "The SEC initiated a lawsuit, detailing KiK "seven sins"", Singular Finance SFL

[2] Annotated Guide to the SEC's Complaint against KIK, Katherine Wu

[3] "Kik and the SEC: What's Going On and What Does It Mean for Crypto?", Katie Haun

[4] "The SEC Can't Keep Kik-ing the Crypto Can Down the Road", Coindesk

(Source: hash pie, Author: LucyCheng)

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