Kik, the makers of KIN, has just responded to the SEC’s allegations in a paragraph by paragraph response.
For those that have missed this particular fight, the SEC has taken Kik, a chat platform, which also developed the KIN token, to court for their KIN Offering, saying that it amounted to a security offering.
“…Kik had been informed by one of its consultants that the Kin offering was, potentially, an offering of securities that needed to be registered with the SEC and that ‘unregistered public securities offerings are not legal in the U.S.”
This is the heart of the issue. What is surprising is everything else the SEC threw in on top of it, such as saying the Kik CEO stated that Kik promised to increase KIN’s price through its efforts, when he firmly stated he could not:
“So we can not guarantee value with Kin. I think once you create a cryptocurrency it sits on exchanges and the price of it is set by the market based on supply and demand. So you know supply is fixed and demand goes down the price is going to go down.” (emphasis mine)
The SEC conveniently omitted many of these qualifying quotes as it didn’t seem to fit the narrative they wanted to build of a company looking to survive through a “Hail Mary” pass of what amounts to using an unregulated securities offering to fund their future business.
And about that characterization of the “Hail Mary” pass of the KIN offering, quotations were again omitted:
The more I think about it, I think this is a great idea. People call it a hail Mary but to me that is a longshot and I really do not think it is a long shot.
The Commission also asked Mr. Livingston directly whether “people consider[ed] the crypto project a Hail Mary on Kik’s board,” and he explained:
I think when people first heard the idea, they, like almost everyone else I’ve ever introduced this idea to, thought it was crazy. But also, they — like everyone else, as they spent more time with it, they heard more about it, they understood more about it, realized that like Jim realized here, not only was this not a long shot, but it was a great shot.
These examples pretty much show the lengths the SEC overstepped their bounds in painting a picture of a desperate company looking for some free cash in the form of an unregulated sale of securities. What it doesn’t address is that central issue.
This looks to me like what my former lawyer called a “Kitchen sink defense,” meaning they throw as much into their suit as they possibly can (including the kitchen sink), hoping one of those accusations stick.
The other thing they are manipulating is the emotions of the possible jury or judge in the case by trying to characterize the Kik company in a negative light.
Using edited clips without the full context quote is part and parcel of the fake news cycle. Such as the Sarah Sanders characterizing the clip of CNN’s Jim Acosta as “Placing his hands on a young woman just trying to do her job as a white house intern,” when very clearly he did not. Then speeding the footage to make it look like a karate chop:
This attempt to discredit Kik looks like a clumsy example of the same type of fake news we are unfortunately getting used to. This may be more suited to the 24 hour news cycle, rather than a legal document, IMHO. In this age of video documentation, it’s simple to examine quotes for veracity.
So, why did the SEC use such a clumsy ploy? Is it because they have a weak case, as is Kik’s response? Or do they actually have a strong case, but merely slipped on a few details?
The heart of the matter is whether Kik’s ICO fit under the Howey test as a security. The test describes an investment as a security if buyers had an expectation of profit, and that profit was dependent on the success of the issuing company. According to Kik’s refutations to the very examples the SEC used, they clearly did not. Everything else is smoke and mirrors. Yet, juries can be swayed, facts be damned, and the outcome seems debatable.
Right now it’s looking like both sides are making their case, with Kik pointing out the mischaracterization of their motives — as if motives have anything to do with this.
The case will come down to this: Are crypto currencies securities? Is an ICO of a crypto token the same as a security offering? Ignore everything else, the misquotes and mischaracterizations such as the “Hail Mary” pass line from the CEO.
Nothing has been decided yet.
The reason it’s still in the courts is that it is debatable. Both sides think they are “righter” than the other. What does matter is its effect on the rest of the crypto currencies out there.
Yet both Bitcoin and Ether have been determined to be currencies, not securities according to the SEC. The KIN token, in comparison to the smart contracts of Ether and the Gold 2.0 of Bitcoin, seems the most “currency like.” It is used as a means of exchange in the digital world, for buying digital stickers, rewarding survey participants, and becoming the lingua franca for a host of DApps:
Tokens used within chat apps are now projected for WhatsApp, Telegram and other social media apps. Kin has more of a currency profile than even Bitcoin, being used for daily transactions, whereas BTC is used for HODlers as a kind of store of value more similar to Gold than a go-to for buying your latte.
And with Kik’s tit-for-tat response the SEC has some ‘splainin’ to do.