Defendant Kik Interactive filed a motion for summary judgment in the case brought against it by 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.
