Much has been written about the verdict of September 30, 2020 by Judge Alvin Hellerstein of the Southern District of New York in the US Securities and Exchange Commission against the Kik Interactive case.
In this ruling, the judge gave the SEC a summary ruling using the Howie Test by finding that Kik Interactive violated federal securities laws by selling contractual rights to buy Kin Tokens and then issuing and selling Kin Tokens itself. Less has been said about the actual final ruling from the court on 21 October 2020, in accordance with an agreed settlement agreement entered into between the parties.
The final court order imposed on the basis of this settlement is imposed on Kiko and its agents and participants who are active in the first distribution, and who have real order notice from various procedures. First, all these persons are prohibited from participating in future sales of unregistered securities. Second, they must notify the committee 45 days in advance of a planned sale or transfer of Kin tokens within three years, even though the order explicitly states that Kik does not need to obtain SEC approval before any such sale or transfer. Finally, Kik was asked to pay a relatively small fine of $ 5 million. (This amount is small compared to the nearly $ 100 million raised through the Kin offer.) Kik was not allowed to return the remaining amount, nor was he allowed to close the Kin network, which was under development at the time and which did not was required to register Kin with the SEC as a condition of advancement.
Kin ecosystem: past and present
Judge Hellerstein’s decision that the sale of Kik Kin in 2017 was in fact linked to the sale of securities, and the fact that the final decision to ban the sale of unregistered securities that are tax-exempt by KIK or any of its agents, is aware of the request , to some it may seem surprising. Kin is still bought and sold.
In fact, at the time of the business closing on December 28, 2020, Kin ranked 130 digital assets by total market value according to CoinMarketCap, with a market value of over $ 77 million and a power supply of just over 1.5 billion ken. … daily turnover exceeded $ 430,000 dollars.
The truth is that the Kin ecosystem today is significantly different from what existed in 2017, when Kik sold the contractual rights to acquire Kin upon release (in the form of simple agreements for future tokens or SAFT) and when Kin Tokens was originally released 26 September 2017 year. At the time the SAFTs were originally sold out, according to the SEC’s complaint, the Kin ecosystem did not exist and there were no services or products that could be purchased with Kin. The Kin ecosystem could only exist after it was bought by investors and after Kik used revenues from previous SAFT sales. At the time of Kin’s first release, everything in there was so-called minimal viable products that offered a very limited set of features.
The least useful products included digital stickers that Kik described as a bonus for Kik Messenger users who have purchased Kin. Stickers made available to customers using the Kik Messenger service. These customers can open a digital wallet in Kik Messenger, and unlock digital stickers that can be shared with other Kik Messenger users. The more Kin and Kik Messenger users, the more “status” users and the more stickers they can access. The SEC called them emoji-like cartoon characters and dismissed them as not for the real use of Kin buyers who could not even buy stickers on their relatives.
This was the moment when the sale of Kin tokens was more similar to Howey’s investment contract test. This test, in its general sense, requires the following: (1) an investment of money or something of value; (2) Under the general scheme. (3) With the expectation of profit; And (4) on the basis of the important business or management efforts of others. At the time Kin was originally sold, buyers paid in US dollars or Ether (ETH) for the new tokens corresponding to the first item.
The second element was controlled by the court because the wealth of all buyers was correlated with the wealth of Kik, who had a large amount of the total allowable chin width left. As for the third element, the necessary profit motive, there have been serious allegations about how much Kik encourages buyers by claiming Kin’s potential profitability.