The U.S. Securities and Exchange Commission sued Canada-based social network platform Kik Interactive, for raising $100 million as an unregistered securities offering, on Tuesday. The company had promised digital tokens issued on a blockchain which could be spent in a variety of ways on the platform. In 2017, Kik Interactive sold 1 trillion of these tokens, called Kin, raising $55 million from U.S. investors, according to an SEC statement, with an additional three trillion tokens planned to be sold in secondary markets.
Kik is not the only company to raise capital by selling tokens that would be issued on a blockchain. Much like Bitcoin, the SEC alleges that the social network sold the tokens in an initial coin offering (ICO) by promising access to services that were not present at the moment.
This aspect of the lawsuit is important since the SEC released the long-awaited guidelines regarding a compliant ICO, more than a year after the token offering concluded.
These guidelines explicitly state that, the tokens should be pegged to the price of other more stable assets, to discourage speculation, and that the services the tokens are designed to enable must already exist.
Kin is not pegged to the U.S. dollar or any other currency and is currently trading at $0.000028— a 24% drop today alone—and is valued at a mere $21. 4 million collectively. With respect to the $22 billion raised via ICOs so far, this lawsuit seems to be one of the many to come up in the future.
“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,” said Steven Peikin, co-director of the SEC’s division of enforcement, in the statement. “Companies do not face a binary choice between innovation and compliance with the federal securities laws.”
This statement might have been the first official word from the SEC regarding the lawsuit, but Kik was probably already aware of it. In December 2018 Kik published a response to SEC allegations and last week Kik CEO Ted Livingston announced on a podcast that he was seeking to raise an additional $5 million from the public to fight the SEC.