As expected, the United States Securities and Exchange Commission has sued Kik Interactive Inc. The regulatory body alleges that the social messaging firm turned crypto company broke securities laws when it held its $100 million ICO in 2017.

Kik argues that it has attempted to work with the SEC over the past 18 months and has spent over $5 million in the process. The company hopes that the outcome of the lawsuit will force the regulator to come up with an alternate definition of what is considered a security.

In a press release published today, the SEC claims that Kik sold tokens to US investors without prior registration of the sale. Using the existing definition of securities, this constitutes a breach of the law.

The current way the regulator evaluates whether the sale of something is a security is known as the Howey Test. It was established in the case SEC v. Howey. Put simply, if you ask people to invest money into a common enterprise with the expectation of profits derived from the work of others, then you’re selling a security. Evidently, this definition has many in the crypto asset space concerned since almost all initial coin offerings (ICOs) that were sold to US investors will fall under the regulatory body’s definition.

In the release, Steven Peikin, the Co-Director of the SEC’s Division of Enforcement stated:

“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.”

Robert Cohen, the Chief of the Enforcement Division’s Cyber Unit added that since Kik explicitly stated that investors could expect to make dollar returns on their initial investment in Kin tokens, then the token was certainly a security:

“Future profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities laws.”

The current law states that all those selling financial instruments deemed securities to US investors must first register their offering with the SEC. Since Kik did not, the firm is now being sued. Previously, the same has happened to other crypto companies – Gladius Network, Paragon Coin, to name but two. However, in these examples the matter did not go to court and the firms settled. The fact that Kik intends to do otherwise makes this SEC action much more interesting than those that have gone before it.

The SEC is suing Kik over its ICO. Is this the most high profile action yet against an ICO? https://t.co/KN2KxOpAqh pic.twitter.com/LPwyc8jDnJ

— Joe Weisenthal (@TheStalwart) June 4, 2019

Last week, Ted Livingston, the founder of Kik, appealed to the crypto asset space for donations to a fund called DefendCrypto. The idea is for the fund to finance Kik’s defence against the SEC, which, if resulting in victory for Kik may, mean a new crypto-specific version of the Howey Test is created.

Many in the digital currency industry have a vested interest in redefining the Howey Test since they too ran ICOs without being registered. Just like Kik, they will also have the SEC after them within time. Livingston hopes that with the crypto space teaming up behind his company, there will be a much greater chance of the SEC losing the case – something that all those that have run ICOs aimed at the US investor would presumably like to see happen.

According to the fund’s website, there has been a total of $4,640,063 contributed so far. Most of the donations have actually been in Ether (ETH), despite it not being the most popular digital asset globally. However, since many ICOs were held on the Ethereum network, it stands to reason that those keen to donate would do so in the Ether tokens that funded their very businesses (potentially illegally) to begin with. The third crypto asset donated to the fund in significant quantities is the Kin token itself.

NewsBTC will bring you more on this case as it continues to develop.

Related Reading: Bitcoin (BTC) Capped, US SEC Delay, It’s now A Matter Of WHEN

The post SEC Sues Kik Over Illegal Security Token Kin, The Outcome Could Change Crypto Forever appeared first on NewsBTC.

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