The U.S. Securities and Exchange Commission (SEC) has sued messenger app maker Kik for its $100 million ICO – which the agency contends was an unregistered securities sale – and the regulator appears to have built up a strong case in its initial court move.
In a complaint filed Tuesday, the SEC alleged that Kik violated federal securities law by not registering its kin token sale. In a response, Kik’s general counsel, Eileen Lyon, said that the SEC’s complaint makes a number of inaccurate assumptions which “stretch the Howey test well beyond its definition” and that the agency’s push will not withstand judicial scrutiny.
Nelson Rosario, a principal at Smolinksi Rosario Law, told CoinDesk that the SEC’s complaint against Kik was similar to others brought against other initial coin offerings (ICOs), in particular with respect to the evidence that the regulator is putting forth.
“Obviously this is a very sophisticated kind of token offering, done by a company that was already established [and not a token startup] but [the] kind of evidence that the SEC brought to bear is very much the same that it’s brought against [other ICOs],” he said.
However, the most distinguishing feature of this case may be that it strictly focuses on an alleged violation of Section 5 of the Securities Act of 1933.
“Until now, all of the SEC’s contested enforcement actions have involved some element of fraud or intentional misconduct,” said Jake Chervinsky, general counsel at Compound Finance. He told CoinDesk:“The Kik action is significant because it represents the SEC’s first [contested] enforcement action for a pure regulatory violation – that is, a case where a token issuer simply failed to register with the SEC based on its good faith interpretation of the law.”
Rosario concurred, noting that this case did not involve any sort of alleged fraud, as did Stephen Palley, an attorney with Anderson Kill.
“This is a straight up ‘...