On January 27, Ted Livingston, the CEO of Kik, took to Medium to address the US Securities and Exchange Commission's (SEC) upcoming decision on whether to file a suit against the messaging app's 2017 ICO for the Kin token. Along with the company's own response to the SEC's allegations that the Kin ICO violated securities laws, Livingston's post states Kik will fight back against the SEC in order to bring "what is happening behind the scenes" to the forefront of ICO regulation conversations.
Kik announced the launch of the ERC20-compliant Kin token in May 2017 during the Token Summit at New York University. Kin stemmed from a "Kik Points" project that saw a peak of 2.6 million transactions per day, with users earning Kik points for performing "valuable actions" and spending those points on themed "Stickers and Smileys."
Kin's white paper explains that the token would operate in a very similar way:
"[U]sers will be able to earn Kin by providing value to other members of the Kik digital community through curation, content creation, and commerce. Kik users will be able to spend Kin on products, services, and other valuable assets offered by merchants, developers, influencers, and other participants."
In September 2017, Kik's ICO raised $100 million. After the ICO, Livingston states in his Medium post that the SEC sent out a "friendly contact" seeking information from Kik. That ultimately culminated in the regulator issuing a Wells Notice in November 2018, stating there had been securities infractions with the Kin ICO. This is what Kik plans to fight in court if the SEC does indeed decide to file a suit.
In Kik's response to the Wells Notice, the company explains that the SEC's notice states that Kik should have registered with the commission, and in not doing so, Kik's ICO was in violation of the Securities Exchange Act. Kik presents an argument against that claim.
Firstly, the company argues that Kin fits the definition of a "currency" in that it is a "medium of exchange," and therefore is exempt from the SEC's definition of a "security." The Securities Exchange Act states that "any instrument commonly known as a 'security' … shall not include currency."
Secondly, according to Kik, the SEC contends that Kik's ICO "amounted to offers or sales of 'investment contracts.'" The company also believes Kin does not fit the recognized definition of an investment contract. The response quotes the Supreme Court's definition as a "contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party."
Kik argues that Kin holders have not invested in a "common enterprise" because holders "have no claims (contractual or otherwise) to assets or any future profits" in Kik or the Kin Foundation, a non-profit governance body that manages the ecosystem around Kin.
Livingston writes in his post, "There are dozens of projects at a similar point with the SEC. We all believe that this industry needs regulation, but we also believe that this is not the way to get it."
Whether or not the SEC decides to file a claim against Kik and the Kin ICO, the company believes a November 2018 case gives them legal precedent. The case denied a preliminary injuncation against crypto exchange Blockvest LLC and its pre-ICO sale of BLV tokens, with the judge stating that the SEC had failed to demonstrate that BLV tokens met the definition of a security under US law.