The mobile messaging app from Canadian company Kick Interactive – ‘Kik’ is in troubled waters. On 4th June, the U.S. SEC (Securities and Exchange Commission) has filed a lawsuit against the company for the unregistered ICO (Initial Coin Offering) it conducted back in 2017. The case is submitted in the Southern District of New York. The allegation is that Kik ran an unregistered securities sale during this ICO for its native crypto token- Kin.
Condemning of Section 5 of the Securities Act of 1933:
The U.S. SEC has revealed that the mobile app company has condemned Section 5 of the Securities Act of 1933. As per Section 5, any initial coin offering must always be registered before conducting it. The co-director of the SEC’s Division of Enforcement- Steven Peikin said-
By selling $100 million in securities without registering the offers or sales, we allege that Kik deprived investors of information to which they were legally entitled, and prevented investors from making informed investment decisions. Companies do not face a binary choice between innovation and compliance with the federal securities laws.”
The Hail Mary Pass:
The U.S SEC complained that the messaging company would lose money gradually. And so it happened. Moreover, the internal team of the company too predicted back in 2017 that the company’s work in this direction is more of a Hail Mary pass. As per SEC’s records, the losses turned out to be quite huge ones accounting to be 30 million U.S. Dollars every year.
Kik’s desperate attempts in 2017:
In desperation, the messaging company did make attempts to get acquired by big tech companies. It tried to form relations with seven suitable suitors. But all went in vain with each one of them declining the proposals to purchase or form a merger with the messaging company.
In the same year, the messaging app company also tried its hands in new business ventures. The company financed it through the infamous ICO, in which it sold one trillion crypto tokens called Kin. At that point, the messaging app company sold the tokens at discounted rates to the rich traders and managed to raise over 55 million U.S. Dollars within the U.S.
The Allegation by the SEC:
The U.S. SEC has filed the complaint that recently the digital tokens have traded at almost half the rate in comparison to what the public paid during the initial coin offering in 2017. Further, SEC also brought it to the company that their native token appeared to be a security.
In the early part of this year, in an interview, the messaging company said that it is planning to drag SEC to the court in case the commission takes any action against the company’s project.
Also, the CEO of the company- Ted Livingston said that Kik had spent 5 million U.S. Dollars that were involved with the SEC. After this company launched a crowdfunding project called- ‘Defend Crypto.’ The objective was to support the probable suing. The CEO of the company further said-
This is the first time that we are finally on a path to getting clarity, so we desperately need as an industry to be able to continue to innovate and build things.”
The SEC has alleged that the company has conducted an unlawful- 100 million U.S. Dollars securities offerings in 2017 KIN ICO. The CEO of the company said that the case presented by the SEC is “misleading and selective” about the 2017 ICO. He further added that he would present the “full story in the court.”
The SEC findings:
The messaging app company knew that it is going to get resistance from the regulators at various levels, yet it went ahead.
- That has been a downhill trend in the earnings of the messaging app company. For instance, the company made 2.2 Million U.S Dollars in 2016, and in mid-2017 it fell to 1.5 Million U.S Dollars. During 2017 ICO the expenses grew up to 3 million every month.
- Seven potential buyers declined to buy Kik or to merge with the company.
- According to the private placement memorandum (PPM), which the user got after joining the company’s simple agreement for future tokens (SAFT), revealed that the company was losing money. Whereas, this sensitive information was kept private from the rest of the public.