A US court has ruled that the $100 million ICO conducted by the Canadian messaging platform Kik in 2017 violated federal securities laws.
U.S. District Judge Alvin Kellerstein has sided with the U.S. Securities and Exchange Commission, ruling that the Canadian messaging firm Kik’s $100 million Initial Coin Offering violated federal securities laws. Judge Kellerstein responded to both parties’ requests for summary judgment, determining that Kik’s 2017 token sale meets the definition of a securities issuance according to the Howey test, as the ICO participants had a reasonable expectation of profit. Kik had been fighting the SEC for the last three years and even shut down its messaging platform to fight the lawsuit.
SEC and Kik jointly submit a proposed judgment for injunctive and monetary relief.
The court ruled, “in public statements and at public events promoting Kin, Kik extolled Kin’s profit-making potential. Kik’s CEO explained the role of supply and demand in driving the value of Kin: Kik was offering only a limited supply of Kin, so as demand increased, the value of Kin would increase.” The judge noted the unique nature of the case, highlighting that the Kik CEO had no “direct precedent” to inform his determination due to the groundbreaking nature of distributed ledger technologies.
The SEC brought its complaint against Kik in June 2019.
After analyzing statements from Kik’s executives and the firm’s business model, Judge Kellerstein likened Kik’s ICO to a “common enterprise,” saying that the success of the firm’s digital ecosystem “drove demand for the token and thus dictated investors’ profits.” The court order mandates that the SEC and Kik jointly submit a proposed judgment for injunctive and monetary relief before October 20. The SEC brought its complaint against Kik in June 2019, arguing that the firm had violated securities laws by selling $55 million worth of KIN tokens to U.S. investors in 2017.