Does Kik Stand a Chance Against the Goliath of the SEC in a US Court?

Establishing the new fund with an endowment of $5 million, Kik is calling on sympathetic members of the crypto community to donate cryptocurrencies, in case the initial $5 million isn't sufficient to negotiate with the SEC and possibly "Take them on in court."

While there's little doubt that Kik is absolutely serious about the possibility of fighting it out against the SEC in a legal setting, history suggests that the SEC won't be budged from its view that kin is a security.

While everything was kept largely under wraps and there were no significant news reports at the time, the SEC issued Kik with eight subpoenas between March and July 2018 - and between August and November of the same year, it demanded nine testimonies from members of the Kik team.

Kik's 30-page response to the Wells notice was so confident that it closed on a defiant tone, with its hired counsel, Patrick E. Gibbs, concluding, "Should the Commission choose to file an enforcement action, Kik and the Kin Foundation are prepared to litigate and are confident that they will prevail in court." This exchange of letters was then followed by a variety of discussions and negotiations between the two parties at the beginning of 2019, with the SEC also requesting further information and documents from Kik.

"That new Howey test is going to come from a ruling in a court case," which is why Kik and the Kin Foundation have launched Defend Crypto - and which is why Kik is prepared to take the SEC to court if the SEC doesn't take them to court first.

Kik also argues that, just because kin holders stand to benefit from any increase in the currency's value, this doesn't qualify as a common enterprise: "Simply owning a common asset whose value rises and falls depending on market forces does not give rise to a 'common enterprise' for purposes of Howey. See Woodward v. Terracor, 574 F.2d 1023, 1025.".

While it's hard to provide a decisive prediction of what exactly will now happen between Kik and the SEC, legal opinion would agree that Kik has a pretty solid case, at least in terms of obtaining a favorable judgment on kin's status.

"At the moment, it's unclear whether Kik will be asserting an affirmative claim against the SEC. In most cases, companies will wait to see if the SEC follows through on the threat to bring an enforcement action. Either way, Kik has put forward some credible arguments thus far, so the SEC will bear legitimate risk if it decides to follow through with an enforcement action."

"If the goal here is to overturn the Howey test or render it broadly inapplicable to tokens, I don't think that is very realistic. But if the goal is to get a court to agree that, under the particular facts and circumstances at issue, KIN tokens don't constitute securities, I think Kik has a reasonable chance of achieving that outcome, which can then serve as foothold for other token issuers to push back against the SEC.".

"Of course, even in a scenario where Kik waits for the SEC to file, Kik would have opportunities to seek an early exit ramp in the form of a motion to dismiss the case, which could help shorten an otherwise lengthy proceeding."