The case against Kik Interactive, Inc. initiated more than a year ago by the SEC has finally come to an end. On October 21st, the SEC secured a final judgment on consent against the company for the unregistered offering of digital tokens “Kin” in 2017.
The allegations brought by the SEC against Kik Interactive, Inc., were based on the activities of the company before and during the ICO. The SEC alleged that by 2017 the business of the company was failing, and Kik Interactive, Inc., intended to finance its new operations by selling one trillion digital tokens. As a result of public and private sales, the company was able to raise about $100 million from investors worldwide.
Although the tokens were released upon the completion of the sale, no product could be used with the Kins. Instead, as the SEC’s alleged, the Kin tokens were marketed as an investment opportunity promising an increasing value of tokens due to the rising market demand driven by the efforts of the company. Kik Interactive intended to keep three million Kin tokens for the company to profit from the trade of tokens on a secondary market along with the investors.
Under the Howey Test used by the U.S. Courts to define securities, any instrument designed for the person to invests his/her money into a common enterprise and expect profit solely from the effort of the promoter could be considered an investment contract, which is one form of the securities. The claims made by Kik Interactive in connection with the sale of its tokens led the SEC to believe that Kik’s ICO was the unregistered securities offering.
Kik Interactive, Inc. attempted to fight the charges at first but then lost a summary judgment in September of this year and agreed to settle with the SEC. As a result, the Kin tokens were found to be securities by the Court, and the company was ordered to pay a hefty fine of five million dollars and to comply with the other non-monetary requirements set by the final judgment.