According to the SEC’s complaint, Kik violated the registration requirements of Section 5 of the Securities Act of 1933. The agency is seeking a permanent injunction, disgorgement plus interest, and a penalty.
Specifically, the securities watchdog alleged that in late 2017, Kik raised $100 million through a digital token sale that was not compliant with U.S. securities laws, as it had not registered the offering with the proper authorities.
Steven Peikin, co-director of the SEC’s Division of Enforcement, said in the press release that by conducting its Kin tokens sale, Kik “deprived investors of information to which they were legally entitled and prevented investors from making informed investment decisions.”
Robert A. Cohen, chief of the Enforcement Division’s Cyber Unit, added that Kik’s offering should be considered a securities offering since Kik told investors that they could except profits from its efforts to build a digital ecosystem:
“Future profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities laws.”
The SEC’s complaint comes on the heels of Kik’s recent announcement that the company is launching a $5 million crypto initiative to fund a lawsuit against the SEC. On May 28, Kik CEO Ted Livingston revealed that the tokenized social media startup is setting up a fund called DefendCrypto.
Recently, Benjamin Sauter, a lawyer at Kobre & Kim, said that by initiating an action against the SEC, Kik has provided credible arguments, which make the regulator bear “legitimate risk if it decides to follow through with an enforcement action.