Defendant Kik Interactive filed a motion for summary judgment in the case brought against it y the Securities and Exchange Commission (SEC). The suit was filed in the New York Southern District Court. The lawsuit questions if Kin’s initial coin offering (ICO) should be regarded as security and thus subjected to regulation. The SEC argues that Kik violated securities law by raising $100 million in Kin tokens through its ICO. Meanwhile, Kik argued that Kin’s ICO was not a security.
Kik previously announced that it would shut down its messaging platform to focus on Kin, the company’s cryptocurrency; however, Kik did not shut down because it was acquired by MediaLab. Kik was originally set to shut down to conserve resources for the suit with the SEC.
Kik’s motion for summary judgment argues that the sale of
Kin tokens during the token distribution event (TDE) did not constitute “investment
contracts,” therefore, these were not “common enterprise” subject to
regulation. Kik adds that Kin was used as a means of exchange in a digital
economy; it was meant to be used in a diverse and decentralized economy. Therefore, it was not guaranteed that a Kin
purchaser would profit.
Each participant agreed to the Simple Agreement for Future
Tokens. Kik sold Kin to start the Kin economy. Kik stated that Kin tokens were
functional at launch because they worked with Kik Messenger; Kin tokens are
still a means of exchange in a digital economy. Kik claims that the SEC’s
complaint “conflates the pre-sale and the TDE.” The SEC argues that the Kin
transaction in total should be considered an investment, requiring registration.
Kik argues that Kin token sales during the TDE were not
investment contracts because they do not “have the essential properties of a
debt or equity security.” Using the Howey
test, which requires an analysis of the contract itself and what Kik “offered
and promised,” Kik claims that there was no “investment contract” and,
therefore, no securities violation. Kik also states that there is “no common
enterprise between Kin purchasers and/or Kik” because the horizontal and
vertical commonality tests are not met.
Additionally, because Kik “did not owe TDE purchasers ongoing
contractual obligations” and “purchasers assumed full control of their Kin,”
there is no common enterprise. Kik did lead Kin purchasers to “expect use and
consumption of Kin.”
Kik argues that categorizing Kin sales as investment
contracts “would be confusing and potentially inconsistent with the actions of
other agencies.” Kik declares that as a medium of exchange it would be
contradictory to categorize it as a security. Kik states that the pre-sale was
conducted using a valid exemption to the Securities Act.
Kik is represented by Cooley. A response is due by April
24.
