Kik Gets Poured Out v SEC
Two weeks ago, Judge Alvin Hellerstein, Federal District Judge of the Southern District of New York, ruled that Kik’s token distribution event was an illegal issuance of a security — an unregistered securities offering — based upon his analysis of the Howey Test.
This case was a much-watched case and was touted as an important bellwether crypto case.
It is, in reality, a disappointment in its lack of fanfare and grandeur, a yawningly predictable Howey Test case as many — myself included — said from the beginning. Yawn. Sorry.
The United States Securities and Exchange Commission made the noted charge whilst Kik denied that their issuance of “Kin” was an unregistered securities offering.
The parties now have until 20 October 2020 to thrash out some form of an agreement. Stay tuned, amigos.
Understandably, the SEC has the upper hand in this matter whilst Kik is in the unenviable position of negotiating whilst at a huge disadvantage.
You can read the ruling here:
Kik Ruling Judge Alvin Hellerstein
Here is a good explanation of what exactly the Howey Test is:
All of this brings us back to the issue of crypto currency and Kin.
1. You will recall that Kik took an aggressive position on its issuance of its token, Kin. Such is its wont and they had every right to do just that.
Very smart people involved. Excellent legal talent.
2. When it became abundantly clear that the US Securities and Exchange Commission took a different view, Kik was defiant.
3. The way these things work, Kik was notified of the SEC’s discontent directly at an early point in time, and, ultimately, by means of a “Wells Notice” which is a confidential letter that told Kik that the SEC intended to take this matter to court.
4. Kik responded to the SEC’s Wells Notice and then made it public — an unusual act rarely done.
Its response was crafted with the benefit of some of the best counsel on the planet. It did not inspire any great thinking in response.
5. It is important to note that the SEC’s logic was unchanged from its first contact.
It was based on a simple Howey Test analysis, something the SEC has been doing since the middle of the last century.
6. The Judge’s analysis followed the SEC’s. No new ground was broken.
During this process, Kik shut down its core business, attempted to rally the entire crypto community to its cause, attempted to raise money, and took their best shot.
Their best shot was not good enough. The SEC and the Judge shared similar thought processes and conclusions. Again, it was a simple Howey analysis. Nothing more.
The big question is “Why did Kik and all the smart people involved see this in a different way?”
But, hey, what the Hell do I really know anyway? I’m just a Big Red Car.