In the ruling (PDF), the judge explained that courts rely on the 3 aspects of the Howey test to identify what constitutes a securities sale. According to the Howey test, something is a securities sale if its a financial investment of money, in a common enterprise and has expectations of profits to be derived solely from the efforts of others. The judge wrote:
” Kik concedes that its issuance of Kin through the Token Distribution Event (TDE) included a financial investment of cash by which individuals acquired or got Ether and exchanged Ether for Kin. Therefore, the celebrations agree that the very first element of the Howey test is pleased.
With regards to the second aspect, he stated that Kik developed a typical business when it deposited its investors cash in a single bank account. Further, he said that Kik proclaimed Kins profit-making potential in public declarations and at public occasions, explaining how investors can earn in such a way that satisfies the third component.
” Kik concedes that its issuance of Kin through the Token Distribution Event (TDE) included an investment of money by which individuals obtained or acquired Ether and exchanged Ether for Kin. In preparing for the sale of Kin, Kik maintained advanced counsel (both in the United States and internationally) to evaluate the law as we comprehended it, and we continue to think that the public sale of Kin was that of a practical currency and not a sale of securities. While this is an obstacle for Kik, this decision does not affect the Kin Foundation, the Kin token and the growing ecosystem of developers making Kin the most pre-owned cryptocurrency by traditional consumer.”
In a statement, Kik CEO Ted Livingston revealed his frustration in the ruling and stated the businesss objective to fight back:
” We are certainly disappointed in this ruling. We are considering all of our alternatives, consisting of filing an appeal. To be clear, Kik has always supported the Commissions goal of securing investors, and we take compliance seriously. In getting ready for the sale of Kin, Kik retained advanced counsel (both in the United States and globally) to analyse the law as we comprehended it, and we continue to think that the public sale of Kin was that of a functional currency and not a sale of securities. While this is a problem for Kik, this choice does not impact the Kin Foundation, the Kin token and the growing environment of developers making Kin the most used cryptocurrency by mainstream customer.”
Livingston formerly stated that Kik and the SEC negotiated for 18 months in an effort to come to an agreement, however the firm eventually decided to take the business to court unless it accepts identify Kin as a security. In order to raise money to face the SEC in court, Kik offered its messaging app business and minimized its labor force to 19, impacting 100 staff members at the same time. Whisper owner MediaLab now runs the Kik messaging app.
The 2 celebrations have till October 20th, 2020 to submit a joint suggested agreement for monetary and injunctive relief. If they cant come to a contract, theyll have to turn in a single document noting their differences.