On the last day of September 2020, Judge Alvin K. Hellerstein destroyed the hopes of Kik Interactive supporters, cryptocurrency entrepreneurs and the Simple Future Token Agreement, or SAFT in general, by supporting the US Securities Commission’s proposal for a simplified decision. SEC vs. Kik Interactive.
The SEC filed the case in June 2019 when the SEC filed an enforcement suit against Kik Interactive Inc. (Referred to in the complaint and here as Kik), a social media company that used SAFT to launch Kin cryptocurrency. Featured symbol in September 2017.
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SAFT and the SAFT Kika process
As many people in the crypto space know, SAFT was originally conceived by the highly successful SAFT process where entrepreneurs raised funds by selling contract rights to acquire shares in an existing venture if the company issued those shares in a specific broader distribution sense and when it was issued. .
The SAFT also includes a two-step process in which a cryptocurrency developer seeks to raise funds by selling contractual rights to obtain cryptocurrencies at launch. If the encoded cassette is a token for a fully functional gadget after launch, then it is hoped that the code itself will not be secure. This means that although the first sale of a SAFT must be recorded or exempt from taxation according to the securities law, the sale of functional crypto assets according to the securities law is absolutely not needed.
In the Kik complaint, the Securities and Exchange Commission (SEC) argued that Kik’s SAFT proposal from 2017 related to Kin tokens was an unrecorded and unrealized sale of securities that involved a single scheme distribution that was to be considered part of a potential token sale. Despite Kik’s arguments about his involvement in two separate transactions (the first “pre-sale” of contract rights, and the second sale of Kin tokens as part of a token distribution event, or TDE), Judge Hellerstein of Sur-New York County on September 30, 2020, York decided that these two The two “phases” are intertwined so that the sale of contract rights and the potential public offering of Kin tokens are part of a single-purpose financing plan. As a result, Pre-Sale and TDE formed an “unregistered offer of securities not covered by disposal”.
The ruling is actually a major hurdle for the crypto community, which had hoped for Judge Hellerstein’s earlier comments detailing Judge Castell’s initial SEC’s order against Telegram from the Kik case. However, despite acknowledging that there was no immediate precedent for cryptocurrencies, the judge ruled that Kin Tokens were securities and that the entire distribution plan violated federal law.
A closer look at the Cake rule
In his ruling, Judge Hellerstein used the Howey investment contract test to determine that Kin Tokens were securities. It appears to have been particularly influenced by Kik’s advertising efforts that increased Kin’s potential earnings, lack of consumer available use at launch, and references to the range of actions Kik has anticipated that will support the growth of the Kin ecosystem and token value. … he wasn’t satisfied with the bare minimum of functionality – to have a wallet and to be able to send and receive premium stickers, receive and see the status of Kin – that was in place at the time of launch, or explicitly waive any contractual obligations to Kik. To support the development of Kin or its ecosystem. Nor has it assessed the extent to which the 57 Kin apps currently in existence have been developed and maintain the value in the ecosystem by others other than Kik.
In regards to his finding that the pre-sale was part of an integrated offer, Al-Qadi turned to the traditional doctrine of complementarity. This requires considering five factors:
Is it a simple financing plan?
Does the sale include the issuance of securities of the same class?
Were sales around the same time?
Was the same bonus received?
Was it sold for the same purpose?
Judge Hellerstein found that there was one financing plan for the same general purpose, based on the fact that TDE was launched the day after the pre-sale, and that all proceeds went to support the Kik business or Kin ecosystem.
While it is difficult to deny the absence of any chronology, there were a number of factors that could influence the conclusion. For example, although everything the company used as a business transaction could be integrated, there were undoubtedly different projects supported by the tools collected.