Funding Friday:

As expected, the SEC sued USV’s portfolio company Kik this week. Here is Kik’s response to the news:

This part of Kik’s response explains that the SEC is stretching the interpretation of the Howey ruling (from almost a century ago) in its efforts to claim jurisdiction of crypto token regulation:

For the reasons set forth in our Wells Submission, the SEC’s complaint against Kik is based on a flawed legal theory.  Among other things, the complaint assumes, incorrectly, that any discussion of a potential increase in value of an asset is the same as offering or promising profits solely from the efforts of another; that having aligned incentives is the same as creating a ‘common enterprise’; and that any contributions by a seller or promoter are necessarily the “essential” managerial or entrepreneurial efforts required to create an investment contract. These legal assumptions stretch the Howey test well beyond its definition, and we do not believe they will withstand judicial scrutiny.

I believe that crypto networks are different than companies and that crypto tokens are different than securities. I look forward to seeing these issues debated in a court of law instead of the basement conference rooms in DC.

If you are interested in supporting Kik’s case, you can do so by contributing crypto tokens to


Comments (Archived):

  1. Henry Yates

    It should be a fascinating court case. Do these type of court sessions get streamed in the US?

    1. creative group

      Henry Yates:This is a Federal case and there is no chance a Federal Judge would allow it to be streamed. The Judge wouldn’t allow this to become a tabloid show to cater to the British Sun consumers.Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT

    2. JLM

      .No cameras in Federal Courts except for a pilot program in three districts. However, all Federal Court filings are searchable in a database. Federal Courts require all filing to be made digitally.How goes it?JLMwww.themusingsofthebigredca…

  2. kenberger

    Enter the hecklers: has to laugh at folks clearly with too much time on their hands (and with lots of flawed logic IMO).

  3. Balazs Deme

    As much as I think Howey can not tackle crypto tokens at all, I think it is quite unnerving to read the charge the SEC brought against Kik. It is one side of the story sure, and there will be more light on this from both side, but still is quite shocking how this was handled internally within the company and how communications evolved during the sale itself.Everyone on the issuer side back then knew quite well what legal repercussions they could be dealing with. To even advertise and promote the token as something that will increase in price and bring profits to people and that Kik will list it on an exchange after is quite a move not to mention other things brought up. Sure it was expected of the ICO craze at the time to promise all that but there is a difference between founder integrity and coin-flippers demands. In retrospect it is easy to criticise when everything is in light but I do think there is wrong on both sides. This needs to be clarified and properly regulated or guided going into the future.

    1. William Mougayar

      As an outsider, you can’t really draw conclusions, because there is always another side of the story that hasn’t fully come out. It’s not even 50/50. Obviously the SEC starts by making their case appear to be strong by piling it on, and the defense’s role will be knock these claims down.So, the SEC’s claims are at best maybe only 1/3 of the story, because you want to assume that at least 50% of their claims are not correct, exaggerated or irrelevant (there was a lot of stretching there). Then you haven’t heard the other side yet, which is the other 1/3 of the story.So you can’t call the end of the game when only 1/3 of it has been played so far.

      1. JLM

        .Are we not entitled to believe the company’s Wells Response?Didn’t that advance the company’s arguments?Historically, the US SEC has been winning 90% of fully Wells-ed confrontations.JLMwww.themusingsofthebigredca…

        1. Richard

          Perhaps the best evidence for the SECs case may be the fireside chat that William had with the founder of KIK TED on the issuance of KIN back in late 2017.Both William and Ted speak of the early motive for KIK (they needed a way to monetize – to generate a return for early KIK investors).The flawed best case argument that William and other early KIK and KIN investors have is if they could find one use case of KIN that did not run afoul of Howey, it would cover all the promotion sales of KIK that were in violation of securities laws.Jurisprudence shows exactly the opposite.

      2. Richard

        This is standard operating procedure for a civil or criminal case, it’s called establishing a prima facie case. That 1/3 that you refer to is all that is necessary. To suggest that this is anything but typical jurisprudence – and arbitrary and capricious conduct – is misleading.

        1. William Mougayar

          It’s all debatable. It’s not misleading.

  4. awaldstein

    Having the compartmentalized rigor to run a company and address this lawsuit is a herculean task.

  5. Mark Gavagan

    Q: What is the Howey Test? (I didn’t know)A: It’s a test created by the Supreme Court for determining whether certain transactions qualify as “investment contracts.”source:

  6. David Anderson

    I reserved my Ethereum in their initial opportunity because I wanted to have fuel to develop decentralized apps, which I do. I participated in the Kin opportunity because I want to develop apps that take advantage of the economic system Kin offers, and I am working on one right now (as a participant in the Kin Developer Program). In neither of these cases was I expecting a return on the money I put in, rather a return on my efforts from building on top of these systems. It was 100% seen as a COST of doing business. I am using the platform and ecosystem to build something.

  7. jason wright

    Is this an existential threat to Kik if it loses the legal argument?

    1. Matt A. Myers

      Maybe unless the VCs are willing to dump money into it to play hardball – whether the amount of dilution occurs is significant enough causing people to move on is another story.

      1. jason wright

        VCs want the crowd to dump their money into it. It’s USV’s investment, and i can imagine it was USV that encouraged Kik to issue the token to save the business and its original investment in the company. Perhaps USV got it wrong. Kik excluded Canadian citizens from the ICO. Why not also US citizens? It took a risk, and is now vulnerable to the consequences of that decision. C’est la vie.

        1. JLM

          .Kik was on its death bed. Failed to disclose this huge fact.The reason they excluded Canadian citizens was because the Ontario Securities Commission told them, “It’s a security.”JLMwww.themusingsofthebigredca…

  8. jason wright…”On September 7, 2017, only days before the Kin ICO, Kik announced that Canadian citizens would be barred from participating, citing weak guidance from the Ontario Securities Commission for the decision.[65] This partly suppressed participation in the ICO, with only $98 million raised of the $125 million goal.”Did Kik seek or receive guidance from the SEC before the ICO?

  9. Guy Lepage

    I am all for this and donated..Can someone let the website developers know that the “Contributed So Far” counter is becoming less over time. It is currently at “$4,437,806” and it was over “$5,500,000” a week ago. Something needs fixing there.@fredwilson:disqus

    1. William Mougayar

      That is because it is in crypto. And as you well know, crypto prices fluctuate.

      1. Guy Lepage

        Yes. For a better UX I would recommend a disclaimer or what have you. *Contribution value will vary due to crypto currency value fluctuation.

  10. Matt A. Myers

    It certainly isn’t expected that the SEC sues large venture funded businesses.

    1. jason wright

      but even laissez-faire has its limits.

      1. William Mougayar

        “Do not harm” is important here. What happened to that. The SEC is harming the industry, not just Kik.

        1. JLM

          .Totally unfair.The SEC is saying, “We have rules when you ask people for money. We exist to ensure that people are protected from financial predators. Just follow the rules.”The rules require a registration certificate and quarterly/annual reports plus an annual meeting.This is hardly the high hurdles.A goodly portion of the ICOs are, in fact, Initial Shit Offerings.Is this the industry you seek to protect?Just register the damn stuff.JLMwww.themusingsofthebigredca…

          1. William Mougayar

            Regulators shouldn’t start regulating something that is still unraveling. Again, if they see everything as a security from a starting point (as they seemingly do), then they are denying the existence of innovation here. That’s a key point.Innovation needs to become an adult before it gets regulated. Don’t knock off babies, before they can start to walk or run. And don’t apply horse carriage regulation to cars. If you do, then it’s like fining cars for generating dust on the old paths, instead of paving them and widening them with asphalt as the answer to modernity.

          2. JLM

            .Those are all interesting bits of literary fancy, but they don’t rise to the challenge — keeping Initial Shitcoin Offerings from fraudently inducing investors to invest in poorly sponsored, inadequately disclosed investments.For goodness sake, Fred Wilson is the Chairman of the Board of a public company, Etsy. He is the COB of Kik.Meeting the burden of an S-1 registration is well within the ken of such a sophisticated financier.There is a level of corruption and fraud that reaches the level of politics or drug dealing.The crypto world is trying to make this into some insurmountable hurdle. It’s a God damned S-1, nothing more.The problem is that the S-1, when reviewed by the SEC would kick some of these offerings out based on the sponsors (Kik was broke when it went to market to throw its Hail Mary), the lack of a viable plan, and the misrepresentations.This is why the SEC exists — not to innovate — to protect investors from shitty investments from financial predators (in no way implying that Kik is a financial predator).Right now, the “industry” thinks that if three guys at a Sbux think it’s a good idea, then that should be enough.We are talking about billions of dollars.JLMwww.themusingsofthebigredca…

          3. Girish Mehta

            Re: “The crypto world is trying to make this into some insurmountable hurdle. It’s a God damned S-1, nothing more”.The problem is that the S-1, when reviewed by the SEC would kick some of these offerings out based on the sponsors (Kik was broke when it went to market to throw its Hail Mary), the lack of a viable plan, and the misrepresentations.”Important point.

        2. Girish Mehta

          Are you referring to the Primum non nocere component of the Hippocratic oath ?Is that relevant to the SEC ?

          1. William Mougayar

            yes, and the use of common sense. i have written about this specifically:http://startupmanagement.or…There is a precedent when the White House decided to Do No Harm to Electronic Commerce in 1997, and let it thrive instead of taxing it, regulating it, boxing it following existing rules too early. The result? The US became a super power in Internet technologies.

        3. jason wright

          The technology is here to stay. The industry will evolve. The greater harm has come from within. The SEC should not give issuers a free pass simply because crypto is ‘innovative’. Each case must be judged on its merits. I actually think the SEC went soft on Ethereum and looked the other way. Not every project will be so fortunate. Kik isn’t a crypto company. It issued a token as a do or die move. We’re going to find out which it is.

          1. JLM

            .Almost every financial fraud/disaster ever undertaken dined out on its “innovation.”Talking to you, derivatives.JLMwww.themusingsofthebigredca…

          2. JLM

            .The argument with the SEC is not over technology or innovation.It is about soliciting money from investors, members of the public, and what disclosures must be made to do that while avoiding “fraud in the inducement.”In 2018, ICOs totalled 1,253, and raised $7,812,150,041, so the argument that the SEC should hold off until the industry grows up is nonsense.The SEC isn’t arguing about code or the application of the blockchain.They are holding Kik to a SCOTUS tested standard that has been around since 1946 and which has a simple requirement — file a US SEC Form S-1 and disclose everything before taking anybody’s money.Kik had fair warning when the Ontario Securities Commission told them, “Uhhh, it’s a security.”Kik heard that loud and clear and didn’t solicit any investment from Canadians in the public solicitation. Kik knew the implications.This is not about innovation or tech. It is about fair money raising.JLMwww.themusingsofthebigredca…

          3. jason wright

            I get that. Here i see that ‘innovation’ is being used inappropriately to try to fend off legitimate examination of motive and action.I understand the technical benefit of a token for the Kik network, but i suspect that the ICO was a convenient way to recapitalise the company without the need to try for another round of venture funding, dilution, et.c. (good money after bad).

          4. JLM

            .Bingo.Kik — a company with a $36MM annual expense rate that had booked $1.5MM revenue in 2017 — had hired an investment banker to put the company into play.The IBer made a list of 35 potential suitors. They met with seven, got a thumb in the eye from all seven.The most basic requirement when raising money is to honestly tell the investors WHY you are doing it and to disclose your current financial condition.They failed to hit their mark on that score.JLMwww.themusingsofthebigredca…

  11. JLM

    .The US Securities and Exchange Commission is painting on a much larger canvas than simply applying the Howey Test to Kin.The SEC alleges violation of anti-fraud and registration regulations.In other cases, the penalties for such behavior have been substantial including a permanent injunction, the disgorgement of the funds plus interest, severe financial penalties, the barring of individuals from any role with a public company or involvement in the future issuance of securities.In several instances, this has morphed into a criminal case. The Kik case as it sits right now is a civil case.Amongst other things, the SEC alleges, directly and by inference, that the sponsor — the issuer — Kik failed to provide or disclose the financial condition of the company (broke), provided different buyers different information, provided no information on the financial condition of the issuer, made public utterances that meet the Howey Test, and knew that Kin was a security because the Ontario Securities Commission had so ruled.Kik described its effort as “a Hail Mary pass.”Much of this information has not seen the light of day until the SEC dropped its Complaint.Point of order: the above are all things that would be contained in an US SEC Form S-1 Registration Certificate. An S-1 would be submitted to the SEC for review and comment. After the SEC reviewed and commented, the company would make the requisite modifications and then enter into a regulatory safe harbor in which their offering would have the imprimatur of the regulators.This is all that a registration entails — the orderly submission of information on the issuer, a description of the security, a disclosure of management and its experience, a disclosure of the financial condition of the issuer, a discussion of the risk factors involved, and audited financial statements. Thereafter, a registered security undertakes a quarterly public reporting duty and an annual meeting.The SEC takes some evidentiary comfort in their allegations based on Kik’s documented and unchallenged behavior — as an example, Kik did not attempt to sell Kin to Canadian buyers in the public sale because of the OSC’s ruling.The SEC says, “WTF, Kik, you knew it was a security because the home team regulators told you that.” Kik is a Canadian company.The SEC is not engaged in a philosophical exercise here. They contend, as an example, that the CEO of Kik said “…people are going to make a lot of money…” at the June 2017 Bitcoin Meetup in San Francisco.That utterance is the essence of a security being issued to make a profit through the efforts of a third party — two of the four prongs of the Howey Test.That’s in the SEC’s Complaint, which while voluminous and in a bit of jargon reads at about a sixth grade level. The SEC’s objections are not arcane or complex.To get into the weeds, the SEC also alleges that Kik monkeyed around with what they consider to be a bogus e-ticket digital sticker program with the objective of creating the impression that Kin was already working. The Complaint says this was a ruse.Subsequent events seem to support the SEC’s opinion.As to the Howey Test, let’s be clear we know what we’re talking about here. This is SCOTUS precedent. Our legal system works based on the application of precedent — meaning legal issues are resolved by the consistent application of case law based on SCOTUS decisions.This laudable notion, called “stare decisis,” is why you find Senators quizzing Supreme Court nominees, thusly, “Do you believe that Roe v Wade is settled law?””Settled law” means a binding precedent. It is how our system works.This lawsuit is not an invitation to debate the Howey Test. The Howey Test is settled law based on a SCOTUS decision. The fact that it isn’t what somebody wants or doesn’t fit the business plan of any enterprise is not really what is at issue here.What is at issue is the simple application of a precedent that has stood unchallenged since 1946 — 73 years.There are men in jail today who violated the provisions of the Howey Test — and in the process did other bad things. The idea that the Kik/Kin case is a novel application of the Howey Test or raises novel issues never before encountered is delusional.There is not going to be a debate. The US SEC is going to provide evidence to a court which will evaluate that evidence in the framework and through the lens of settled law and render a verdict.In that proceeding Kik’s legal team will get to examine evidence, rebut evidence, cross examine witnesses, and provide a defense.If Kik doesn’t like the verdict, they can appeal, but they will have to have some basis — some error or wrongful judgment or verdict contrary to the evidence — for making such an appeal.Ultimately, if Kik believes that the Supreme Court is going to overrule a precedent, then they will have to get the case before the SCOTUS. Good luck.The SCOTUS is not in the “overruling precedent” business.In the end, it is important to know that this is a larger Complaint than just a misapplication of the Howey Test. The US SEC alleges violation of both anti-fraud provisions and registration provisions.In any undertaking like this, smart people reserve judgment until they can see all the arguments (contained in the Wells Notice, the Wells Submission, the Complaint, the Answer) before forming an opinion. Now, we can see all these documents.I have to say I was caught off guard by the contents of the Complaint, much of which was not in the ether — a credit to the SEC’s confidentiality of its investigations.In the crypto bubble we are often treated to a single view from the zealotry — Fred, as an example, is the Chairman of the Board of Kik — and are often unable to form a fair opinion absent a more complete discussion. Now, we have a lot more info.The US SEC’s view of the world on registration and anti-fraud matters has prevailed in about 90% of these cases. Some of the others have settled enroute to the verdict.Stay tuned.JLMwww.themusingsofthebigredca…

    1. William Mougayar

      If you believed everything in the claims report, then you might as well believe in Santa Claus. As you well know, it’s expected that a given claim will pile it on with as many points as possible to make a case appear to be strong. The defense’s job will be to deny or admit these allegations accordingly.

      1. JLM

        .The SEC’s Wells process is the bulwark against exactly that argument.In the Wells Notification, the US SEC laid out its proposed charges. They were very simple.In their Wells Response, Kik laid out its arguments. They were not persuasive.I do not agree that the Complaint overstates the allegations — three examples:1. Kik made no real financial disclosures and made different disclosures to different people.This inequality of information — information provided to induce an investor to invest — is a death stroke whether the issuance is a security or not.This is support for the SEC’s allegation of a violation of the anti-fraud provisions.Very simple bit of evidence.2. The utterance of the CEO at the SF Bitcoin conference in 2017 is on video.Again, very simple bit of evidence.3. The knowledge that the Canadian regulators had opined that Kin was a security dictated the company’s behavior.Again, very simple bit of evidence.The simple evidence is starting to stack up.This whole notion that this case is going to be a debate about the applicability of the Howey Test is delusional, particularly given that the SEC has been winning a great number of these cases and that it is well-settled law.I read every word of the company’s Wells Response and they advance nothing novel or even mildly intriguing.I care not a whit as to the outcome, but I do like to analyze a problem. I see absolutely nothing for Kik to be optimistic about.The defense doesn’t get to just “deny” these allegations. They have to PROVE them to be wrong. The SEC has the burden of proof.Wm, what exactly are you saying about Santa Claus? Tell me you are not suggesting that he is an ISO issuer, are you? Or that he’s not real? I believe in Santa.Be well, amigo.JLMwww.themusingsofthebigredca…

        1. William Mougayar

          Then, on those grounds they might as well sue and fine everybody in the world that is touching crypto, including Satoshi Nakamoto, EOS, Tezos, Ethereum, etc… If they can’t tell the difference between shit coins and real ones with potentially viable business models, that’s their issue. They should just accept what has happened during their murky guidance, and provide real guidance as a go forward, instead of twisting Howey to make it fit crypto with and added 25 factors and 11 considerations. That’s crazy. Read these 2 articles:…And

          1. JLM

            .Please do read both of those articles. They both stand for the proposition that the SEC has never suggested to anybody that the SCOTUS precedent Howey Test was anything other than the pertinent hurdle to be crossed.Read this one also –…wherein industry insiders profess their surprise at how badly Kik stubbed its toe. This is not a skeptic’s voice. This is CoinCenter.This matter will be decided based on evidence and precedent. It does not look good for Kik — as CoinCenter opines.JLMwww.themusingsofthebigredca…

          2. Girish Mehta

            Re: “What this means from Coin Center’s perspective is that, at the moment at least, this case does not seem to turn on any question of law, but on questions of fact”.This is why I had commented to Fred’s post a few days back that we need to hear what the SEC’s argument is.Separately, and on an unconnected note , I am reminded of something Carl Sandburg said – “If the facts are against you, argue the law. If the law is against you, argue the facts. If the law and the facts are against you, pound the table and yell like hell”

          3. JLM

            .Small point — the simple fact that you, an intimately knowledgeable insider, acknowledge the existence of Shit Coins is all the call to action that the US SEC requires to stick its nose into the soup.The fact that the Shit Coins are part of $8B of offerings in 2018-9 is the justification for the US SEC to move with haste to sort things out.What percentage are Shit Coins — 80% 10%?This is a market in need of regulation.JLMwww.themusingsofthebigredca…

          4. William Mougayar

            The word shit coin is derogatory and I don’t really like it. On the same basis, then 95% of startups would be shit startups because only a few succeed, but we don’t characterize them that way. I prefer boxing the bad stuff as scams, and let the SEC go after those for sure. It is not their job to assess the ability of companies to raise money or not, or judge them on other business related issues. We all know that startups are full of ups and downs, and a given snapshot is not indicative of their actual journey.

          5. Richard

            “It’s not their (the SEC) job to access the ability of companies to raise money” ? Their jurisdiction is exactly that. you know that! This Canadian SEC prohibited KIK from this making this offering. Talk about spin.

          6. William Mougayar

            I was referring to the private raising of money, prior to the ICO. The SEC linked the two, but that linkage is flawed.

          7. Richard

            I know you want to believe that the SEC is filled with a bunch of 3rd rate attorneys and that William knows better. This is a fairly tale.

          8. Girish Mehta

            One way the SEC could differentiate the bad stuff from good is by reviewing the S-1s…for which the company would need to file the S-1.

          9. William Mougayar

            Yes and no. You can file all you want and still be a crook. We may need a new type of filing for cryptonetworks.

          10. Girish Mehta

            Sure. But that’s a different argument.

          11. JLM

            .Who wrote this?”If they can’t tell the difference between SHIT COINS [emphasis added] and real ones with potentially viable business models, that’s their issue.That would be you, Wm. Right in this blog. Following your lead, amigo.The SEC’s job is damn sure to evaluate the ability of a company to fairly raise money from investors. The SEC looks at the background and expertise of the management all the time.An S-1 is judged by whether it fairly discloses all the risks to an enterprise, to the industry, to the offering.JLMwww.themusingsofhebigredcar…

          12. William Mougayar

            I was responding to you. Not regretting what I said, but you lead me down that path.What I was saying is there are plenty of potential shitcoins out there that the SEC could be going after, and KIK isn’t one of them (not even close).

          13. Richard

            Ixnay on the admittanay

    2. Richard

      The bigger issue is if the next letter comes from the DOJ vs the SEC.

      1. JLM

        .The US SEC is signalling they want to settle. When Kik publicly released the Well Notice and their Wells Response, they closed the door on that possibility for the short term.The bigger issue is “can Kik settle?” Do they have the money on hand to disgorge with interest?The SEC settled the CarrierEQ Inc-Airfox ($15MM) and Paragon Coin Inc ($12MM) cases back in 2017 with:1. An agreement to reimburse all investors,2. An agreement to register digital assets,3. A make whole/reimbursement provision for investors,4. A $250K fine.These were small deals, but they were “non-fraud” allegations and the companies didn’t launch a global fight.The Munchee case, a token offering stopped in mid-offering, provided some useful guidance in the SEC’s utterance:“Our primary focus remains investor protection and making sure that investors are being offered investment opportunities with all the information and disclosures required under the federal securities laws,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.The SEC is geared up to deal with this and has formed units: The Cyber Unit, the Distributed Ledger Tech Working Group, and the Complex Financial Instruments Unit.The SEC has been communicating its wishes to the marketplace for at least two years.Their Investor Bulletins and the DAO report are illuminating as to their mindset.…JLMwww.themusingsofthebigredca…

        1. Richard

          I believe that SEC investigations are not public unless used in a charging document

          1. JLM

            .Kik publicly released the Wells Memorandum and their Wells Response in this instance.Federal lawsuits are public filings. That’s why when the US SEC ran out the string on the Wells process and filed a lawsuit, everybody was surprised to see what was in it.As a general proposition, no Federal investigations are ever public — well, unless James Comey is involved wherein it gets leaked and you get a public tongue lashing (talking to you, Hillary).In fact, there is a DOJ policy against revealing any info on a party who is investigated, but not charged.The SEC does a good job of releasing the outcome of lawsuits and other enforcement actions on their website.They also do a good job of public policy guidance.JLMwww.themusingsofthebigredca…

    3. sigmaalgebra

      I’m NO lawyer! But, okay, I can get interested in good arguments.So, my first issue would be, what the heck, how the heck, why, should, can the SEC get involved with Kik at all?So at…I just foundUnder the Howey Test, a transaction is an investment contract if:It is an investment of moneyThere is an expectation of profits from the investmentThe investment of money is in a common enterpriseAny profit comes from the efforts of a promoter or third party So, it looks like from the Howey test the Kik initial coin offering (ICO) meets the test, that is, says that the SEC should get involved.Then with the SEC involved, Kik needs to file at least an SEC form S-1.Now Kik starts to be in trouble with the SEC.Q. 1. Could, can some lawyers win a case that the SEC not get involved with Kik, that is, that the SEC should essentially ignore Kik and in particular not expect or require Kik to file an S-1?A. 1. From some of what JLM has posted here, the Howey test appears rather obviously to apply to the Kik ICO. And, due to the way our legal system works with precedents, and SCOTUS “established law”, to win, Kik will have to take the case to the SCOTUS and have the SCOTUS change the solid, old Howey decision. The SCOTUS does NOT like to change such decisions.So to answer Q. 1., lawyers for Kik would have to take the case to the SCOTUS and there get some reversal of the Howey decision; so, net, lawyers would have little to no chance of winning for Kik.For more:While the technology of an ICO might suggest that some parts of security law and SEC regulations might be changed, just the Howey test to get the SEC involved and the SEC requirement for an S-1 seem solid.So, so far, through the requirement for the S-1, it looks like the SEC is on solid ground.

  12. Kevin R Ricoy

    My concern is the following:1 – Let’s suppose this is painting the worst possible picture of Kik and internal operations, leaving out facts, and bending others, essentially slander. They will also do the same in court in front of a jury and judge. While I agree that these characterizations should be refuted vehemently, it does not mean Kin will come out victorious. Their colorization is damning.2 – Resolving this in a way that represents the best interests of the Kin ecosystem should be paramount, it is infinitely more important than refuting what we believe to be false claims or government overreach whether we agree with them or not, as there are many others involved now than just Kik. If this all ends in flames, everyone will go down. Conversely, having egg on their face but bowing out in order to allow continued operations in the USA without any looming legal issues would open the world up to the project. The SEC has said they are willing to work with illegal issuers from three years ago but did not work with Kik on a no action. The SEC staff did not have the authority to offer settlement without registration but the commissioners did. Instead they put senior litigators on the case. This is not a good sign.3 – In continuing the above, disgorgement stipulations would have to be fulfilled which means Kik and Kin Foundation would be defunded, which leads me to the ultimate point. If the investors backing Kik truly believe in Kin, and I do believe they should, they should help fund Kik and Kin once again, which might seem like an insane quadruple-down all-in, but it seems a better alternative to bringing more retail investors and indeed the entire cryptosphere into the fight in their stead, as well as the Kin ecosystem, indeed using even more of the very funds that were meant to create a more fair digital world. Alternatively, a fair launch no ICO Kin with decentralized governance would likely be celebrated and heralded as something similar to a PoW network launch like Bitcoin and GRIN.4 – Kik has a fundamentally new value proposition for monetization with Kin. It works. Rave made $12k worth of Kin last month and it is not even doing well on secondary markets. Kik could be like the Bitmain of this new network, until even bigger partners join, indeed even other USV companies that have had trouble monetizing. This could be the Cinderella story of the century. Kin Foundation itself has an incredible proposition for the world at large. They’ve truly done it this time. This is an amazing concept and technology. It shouldn’t be that crazy to raise money again, whether that be via private placement or crowdfunding, in order to be able to do whatever is necessary to make the SEC happy. If that involves another arbitrary fork and migration, so be it. The technology has already been built, it can be used. Alternatively, Facebook announces their Kin clone this month while we mess around in Asia for a few years just to end up in court with an angry SEC that is willing to smear the entire project in order to win, and will likely appeal a decision even if they lost.All of this seems frivolous. Settlement and necessary restructure seems to be the obvious path here for the sake of the ecosystem. And it should, by all means, be a profitable move in the end. But Kik needs support from people like Fred in order to do it. Coincenter, the advocacy group lobbying for a new asset class and pushing for a polished token taxonomy act no longer supports this case because of the facts brought to light by the complaint. Our argument now seems to rest on common enterprise, and Kathryn Haun, former Justice Dept prosecutor, said from the beginning that whether or not we could pass that test depends on where we are tried. The SEC chose SDNY, a point in their favor.Why not just go all in on support of Kin, without this dipping-of-toes outsourcing involving crowdfunding a fight against the SEC while not being willing to truly back this fundamentally new concept in order to survive? Kin should be thriving in the USA, a pinnacle of both American and Canadian innovation. Not stuck fighting battles, regardless of if we agree with their arguments or not.

  13. cavepainting

    The details in SEC’s complaint are pretty damning.If Kik wants to claim that Howey is not an appropriate test for crypto, that’s a different argument than saying they did not mean all the things they said (expectation of profit, people will make lots of money, etc.). Kik is trying to make both points which comes across as disingenuous and sly.Yes, SEC regulation on crypto is unclear and murky, but they also have the obligation to look out for the retail investor in the US who needs to be protected. If Kik had not offered the ICO to retail investors or limited it only to accredited, they might not have run into the cross-hairs of SEC.We can lobby for a) more clarity in how crypto is regulated AND b) Ensuring that vulnerable people do not get scammed. These efforts need not be mutually exclusive.The irony of all this is that Kik is at risk of being made a poster child for ICO scams though they are a legit project seeking to innovate on the leading edge.