Back in 2017, messenger app Kik raised $100 million in an initial coin offering (ICO). The U.S. SEC believes the company issued unregistered security. Following Kik’s submission of a Wells Response last December, the SEC is almost out of time to decide whether to pursue an enforcement action against the company, a16z writes.
Kik explained the cryptocurrency had been created to integrate it with the platform. It also pointed out its good “good faith compliance efforts,” including KYC/AML and OFAC screening as well as paying taxes on token sale revenues. Kik argued currencies are not securities under existing law.
According to a16z Kik could argue that “that there’s no common enterprise between them and the Kin purchasers” as “common enterprise” is a necessary part for a coin to be a security under the Howey test.
Basing on reviewed public information, a16z writes it does not seem Kik was “under any contractual obligation to the purchasers” apart from its part to deliver the tokens. Kik also pointed out the “consumptive use” of the coins, it claimed, were not meant for investment. Half of participants purchased less than $1,000 of Kin, and the company promoted “broad participation.”
While most companies opt to settle with the SEC to avoid high costs in case of a loss, Kik decided against a settlement. Therefore, the SEC may recommend enforcement action if it doesn't deem Kik's explanation as sufficient.
The whole process has been costly for the company. According to Kik founder Ted Livingston, the company has already spent $5 million on the negotiations during the last 18 months, CoinDesk writes.