Under Fire: Kik Is Gearing Up for a Fight With the SEC

Canadian-based social media startup Kik is gearing up to challenge a proposed enforcement action from the United States Securities Exchange Commission over a fundraising initiative in 2017.The American securities regulator believes that Kik's Token Distribution Event two years ago violated securities laws.

Kik replied to the SEC in their "Wells Response" letter in December, arguing that the SEC's regulation by enforcement approach has negatively affected the development of blockchain and cryptocurrency in the U.S. and has subsequently led to businesses in the sector either shutting down their projects or moving overseas.

"Simply put, Kik did not offer or promote Kin as a passive investment opportunity. Doing so would have doomed the project, which could only succeed if Kin purchasers used Kin as a medium of exchange. Accordingly, Kik marketed Kin, not as an investment opportunity, but rather as a way to participate in a fundamentally new way for consumers to access digital products and services, and for innovative developers, and their users, to be compensated for the value they provide."

To this end, it created a virtual currency in 2014 called Kik Points within the Kik Messenger.

According to the company, Kik Points generated an average of 300,000 transaction per day, and at its peak, Kik claims its monthly transaction volume was nearly three times that of Bitcoin.

The crypto community will now wait for the SEC to consider Kik's Wells Response before deciding if it should carry out creating a recommendation to the SEC commissioners to authorize a case against the company.

"The reality is that the facts underlying the sale of Kin will be the determining factor. If the SEC believes those communications involved conveying an expectation of profit, then the SEC will not buy the arguments Kik is making in its submission. Lastly, I think the SEC is beyond the point where it will be lenient with Kik, especially with this public 'defiance' of the SEC. Therefore, if the SEC thinks it has a good case, it will not take it easy on Kik just because it was better than other ICO issuers at the time."

There is no clear indication of how the SEC will react, but Boiron believes a worse-case scenario will be severe for Kik.

"The Kin token could no longer be freely transferred everywhere within the ecosystem if Kik is required to treat it as a security as a result of the restrictions that exist with securities. All of this would impact users who need to use the Kin tokens. To the extent the Kin tokens do not need to be used in the Kik ecosystem, then users who do not currently hold Kin tokens will not be significantly impacted."

"Undoubtedly, a positive outcome for Kik would be tremendously helpful for crypto and blockchain companies. However, there are limitations that need to be recognized. Kik is now, and even at the time of its ICO, had a much more developed product and ecosystem than 99% of the companies that have sought to do ICOs. For example, Kik already had a points system that was pretty robust."