Kik Claims ‘SEC Has Been Twisting Facts’ in Their Ongoing Legal Battle
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August 07, 2019
The U.S. Securities and Exchange Commission (SEC) sued Canadian software company Kik Interactive Inc. in June claiming a $100 million token sale was illegal. Based on document discovery and interviews conducted by the SEC over an 18-month investigation, this Complaint put Kik in an unenviable position.
However, Kik promised they will fight back and raised a several million dollar legal defense fund with a promise they would use it to “defend crypto.”
On 130 pages Kik claims the SEC took executives’ comments out of context in a suit alleging the startup’s 2017 token sale violated securities laws.
Just for an example, in its complaint, the SEC said a consultant warned Kik that “the Kin offering was, potentially, an offering of securities that needed to be registered,” but Kik’s response says that this was taken out of context.
Kik, who raised $100 million from the sale also claimed it has been looking at cryptocurrency since 2012 and did not use it as a last-minute pivot, as the SEC proposed. This Toronto-based company says Canadian regulators never made a final determination on whether the token was a security, contradicting their U.S. counterparts’ claims.
Kik went on to emphasize that it did not conduct a single sale for the Kin token, but rather two sales: a private SAFT (Simple Agreement for Future Tokens) and a public token sale. The SEC conflated the two, undermining its case.
In the United States, the sale of securities is regulated under the Securities Act of 1933, which requires registration before offerings. SEC claims that Kik managed to sell their Kin tokens, which weren’t registered for taxation, therefore it could also be added to the list of charges.
The Complaint starts with Kik aggressively defending themselves saying SEC took statements out of context for its own narrative purpose. Kik then in a complaint wants to show themselves in an ethical and successful manner saying they resisted acquisitions because “the philosophy of the acquiring company was to collect and sell user data, contrary to Kik’s core principles.”
Also, per their letter, “it is difficult to explain the Commission’s apparent contempt for the idea that a company would sell a product to generate revenue, Kin was not simply a means to fund operations.”
Be it as it may, Kik keeps claiming that its public offering of Kin was not a securities sale. Kik’s attorneys wrote that the SEC recognized its claim was weak and therefore created a “highly selective and misleading” picture of the circumstances of the sale.
For example, the SEC alleged that a consultant warned the company that Kin needed to be a registered offering. But Kik said the consultant then immediately went on to say that in the case of a “community currency”, this would not be the case.
“You’re just selling units of property that you created that are used for a particular purpose in your app,” the consultant allegedly said.
The plaintiffs and defendants met with a judge in the U.S. Court for the Southern District of New York to work out a timeline for going to trial and Kik has asked for a May 2020 trial date, while the SEC has reportedly asked for a date later in the year.
Kik’s CEO Ted Livingston said that they wanted this to be resolved as fast as possible. He confirmed that the judge did not pick a trial date, but, apparently chose Kik’s timetable on discovery, which will conclude by November 2019. Livingston added:
“We’re very confident in our case.”