The U.S. Securities and Exchange Commission (SEC) has filed suit against messaging company Kik for its 2017 initial coin offering (ICO).
The SEC claims that the ICO for Kik’s kin token was an unregistered securities sale that violated Section 5 of the Securities Act of 1933. The SEC submitted a filing Tuesday in the Southern District of New York.
“By selling $100 million in securities without registering the offers or sales, we allege that Kik deprived investors of information to which they were legally entitled, and prevented investors from making informed investment decisions,” said Steven Peikin, co-director of the SEC’s Division of Enforcement.
“Companies do not face a binary choice between innovation and compliance with the federal securities laws.”
One trillion tokens
According to the SEC, the Ontario Securities Commission had already previously warned the Waterloo, Canada-based Kik that their kin token can be classified as a security.
The SEC filing alleges that Kik had been losing money on its online messaging app at an average of $30 million a year. Internal predictions by management reportedly saw the company running out of money in 2017, and attempts to be acquired by a larger company had all been rebuffed.
The SEC further says that Kik wanted to pivot its business model in early 2017 using funds gathered during the sale of one trillion kin tokens. The company raised more than $55 million from U.S. investors.
Fighting the SEC
The complaint notes that kin tokens were traded recently at only about half the value public investors paid during the ICO. Kin prices fell more than 25 percent within two hours of the SEC lawsuit’s announcement.
Kik, meanwhile, told the Wall Street Journal earlier this year that it plans to take the SEC to court if the regulatory agency brought an enforcement action against their kin token ICO.
Last month, Kik CEO Ted Livingston revealed that the company had already spent $5 million on negotiations with the SEC. The company also launched a crowdfunding campaign to build up a war chest in case of a lawsuit.
“We have been expecting this for quite some time, and we welcome the opportunity to fight for the future of crypto in the United States,” said Livingston in a statement regarding the lawsuit.
“We hope this case will make it clear that the securities laws should not be applied to a currency used by millions of people in dozens of apps.”