The Securities and Exchange Commission has filed what could be a landmark lawsuit accusing messaging app maker Kik with violating U.S. securities laws.
The lawsuit stems from Kik Interactive’s sale of blockchain-based tokens, which raised about $55 million for Kik, which had been struggling financially. The SEC alleges that Kik failed to register the tokens, as required by U.S. law.
“By selling $100 million in securities without registering the offers or sales, we allege that Kik deprived investors of information to which they were legally entitled, and prevented investors from making informed investment decisions,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement in a press release. “Companies do not face a binary choice between innovation and compliance with the federal securities laws.”
The lawsuit, though, may help to establish clarity in what has been a murky area: are issuers of initial coin offerings required to comply with the same registration and disclosure requirements that traditional securities, such as stocks and bonds, must fulfill. Congress has not addressed the issue with legislation, and the SEC’s directives and litigation has not offered much clarity. Until the filing of the Kik lawsuit, the SEC had focused its litigation efforts on cases that involved not only unregistered tokens but also alleged fraud.
Some are questioning whether the lawsuit against Kik goes too far by seeking punishment for behavior that fell into a gray zone.
The SEC lawsuit is not a surprise, but still it’s a shame. Unlike many other companies that held ICOs, Kik was not a scam or a fly-by-night operation. As Fortune reported in 2017, the company had been experimenting with tokens for years with “Kik Points,” a type of digital money that traded hands up to 300,000 times a day. The SEC’s decision to come down heavy on Kik came in the name of protecting investors, but it also risks punishing early innovators in the blockchain economy.
Does the SEC’s Lawsuit Against Kik Go Too Far?
Predictably, Kik thinks the SEC’s legal arguments are flawed:
And some thorough analysis:
