The U.S. Securities and Exchange Commission (SEC) and software firm Kik could soon finally settle their dispute over the 2017 $100 million KIN Initial Coin Offering (ICO).
According to court documents released on 20 October, both parties have submitted a proposed settlement, which will see the software firm pay $5 million in penalties, that could end the year-long legal fight between the two. While the settlement still requires the approval of judge Alvin Hellerstein, it would prohibit Kik from violating U.S. securities law in the future. Even though the document did not specify what would happen to Kik’s 3 trillion KIN tokens if the settlement is approved by the court, the firm is obliged to give the SEC a 45 days warning before it does anything with its token treasury.
The court document reads:
“The proposed Final Judgment, if approved by the Court, would permanently enjoin Kik from committing future violations of Section 5, pursuant to Section 20(b) of the Securities Act of 1933, 15 U.S.C. § 77t(b); impose a conduct-based injunction, as set forth in the proposed Final Judgment, under Section 21(d)(5) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u(d)(5); and require Kik to pay a penalty of $5 million, pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d).”
The legal fight began in June 2019, when the SEC announced it was going to sue the Canadian startup over its 2017 ICO, which the regulator alleged sold unregistered securities. The firm, confident in itself, wanted to fight the regulator in court, with the hope of creating a precedent for how token offerings should be treated under the law, but given the opportunity to request a jury trial, the firm backed away.
One of the reasons behind the sudden settlement proposal could be judge Hellerstein’s ruling from last month, where he stated that in his view Kik’s “token distribution event” (TDE) satisfied the three elements of the Howey test, indicating it was a security. The judge said at the time:
“Kik concedes that its issuance of Kin through the TDE involved an investment of money by which participants purchased or acquired Ether and exchanged Ether for Kin. Thus, the parties agree that the first element of the Howey test is satisfied. The parties dispute whether the second and third elements are satisfied. I hold that that they are.”
Another firm that had similar troubles with the U.S. SEC was Telegram, which was able to gather around $1.7 billion from its Gram (GRM) ICO. Arguing that the ICO represented a sale of unregistered securities, the regulator obtained a temporary restraining order against Telegram in October 2019, only weeks before the GRM token was scheduled to be released. The firm then decided to extend the launch date of the token to next year. In May 2020, the firm officially withdrew its appeal against the U.S. court decision to ban its project, and in June settled with the SEC, agreeing to pay $18.5 million in civil penalties, and to return $1.2 billion to investors who participated in its ICO.