Kik is fighting fire with fire in its battle against the U.S. Securities and Exchange Commission (SEC). The crypto startup has raised over $4.3 million in crypto in its Coinbase account to take on the SEC.
The Commission is suing Kik Interactive Inc. for its initial coin offering launched in 2017. The high-profile ICO sold Ethereum-based Kin, a digital token for users to earn and spend on the platform Kik. Regulators say the company ran an unregistered securities sale that raised $100 million.
According to the SEC court filing, the messaging app Kik turned to the ICO model to deal with the fiscal fallout of its dwindling user base.
“Fewer and fewer people were using Kik Messenger. The company expected to run out of cash to fund its operations by the end of 2017, but its revenues were insignificant.”
The SEC is seeking unspecified monetary penalties. Says Steven Peikin, co-head of the Commission’s enforcement division,
“Companies do not face a binary choice between innovation and compliance with the federal securities laws.”
Kik says it is defending cryptocurrency from regulatory overreach. In response to the SEC court filing, CEO Ted Livingston says,
“Kin is being used by more people in more apps every day, and come trial, Kin may be the most widely used cryptocurrency in the world. While the SEC’s actions are a challenge to overcome, they won’t affect the use, transferability and characterization of Kin, and we expect momentum in the Kin Ecosystem to only continue to grow.”
“We hope this case will make it clear that the securities laws should not be applied to a currency used by millions of people in dozens of apps.”
The company has launched a fundraising page called Defend Crypto that is accepting donations in multiple cryptocurrencies – including top 10 coins Bitcoin, Ethereum, Ripple (XRP), EOS and Litecoin – into its Coinbase account.
Jake Chervinsky, general counsel at Compound Finance says the Kik case matters because it’s the first enforcement action for a pure regulatory violation.
“This is the most important storyline in the world of crypto securities law in 2019; far more significant than any SEC guidance or proposed legislation. The SEC keeps saying digital tokens are securities, but can they prove it in court? Respect to Kik for their aggressive stance.”
While Kik’s general counsel says the SEC’s complaint is based on flawed legal theory, a win for the regulators could have a domino effect on similar ICOs that are under investigation by the SEC.
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