Kik, the tokenized social media app company, is planing to fight the United State regulators over a proposed enforcement action against its 2017 Initial Coin Offering (ICO), The Wall Street Journal reported Jan. 27.
The enforcement action, faced by the Canadian based startup Kik, is over an alleged securities infraction, after its 2017 ICO was judged by the U.S. SEC to have involved the sale of unregistered securities. The startup reportedly was able to raise approximately $100 million through the sale of its “kin” token.
According to the WSJ report Ted Livingston, founder and CEO of Kik, said the kin tokens work like a currency, and as such are not an unregistered security. He cited the Securities Exchange Act of 1934, which explicitly says that the definition of securities “shall not include currency.” He further added that kin does not satisfy the Howey Test, the standard used by the U.S. to determine if something is a security
Livingston said in a Medium post that SEC has been in touch with Kik since the launch of its ICO, and culminated with them receiving a Wells Notice on Nov. 16. The Wells Notice is issued by the U.S. SEC if it deems that a securities infraction has occurred, and the company is given 30 days to publish a “Wells Response” letter.
According to the post, Kik submitted a letter to the agency on Dec.7, saying that its ICO was not involved in a fraud and that the claims unjustifiably target a company that has made substantial effort to comply with existing regulations and law. Livingston further said:
We all believe that this industry needs regulation, but we also believe that this is not the way to get it.
It was implied that if the SEC pursues an enforcement action, Kik and the Kin Foundation are prepared to litigate. If it comes to that, a judge would have to rule on the question whether ICO sales are to be regulated as securities offerings in the U.S.. According to Livingston, the next step is for the SEC staff to “decide if they want to make a recommendation to the four SEC commissioners to authorize a case against us.”