Kik and SEC joint settlement

Kik to pay $5M fine, ending two-year legal fight with SEC

Although the multimillion-dollar fine might seem like a slap on the wrist given that Kik held a $100 million ICO, legal expenses have had a toll on the company

After two years of legal wrangling, the U.S. Securities and Exchange Commission (SEC) and Kik have reached a joint settlement.

According to court documents published on Oct. 20, the software firm will have to pay a fine of $5 million—and will be prohibited from committing further violations of the Securities Act.

The proposals have now been submitted to Judge Alvin Hellerstein, and his approval would finally bring the long-running proceedings to a close.

A crushing defeat

Ted Livingston (Photo: Twitter)

The proposal comes three weeks after Hellerstein handed down a summary judgment finding that Kik’s $100 million ICO was an unregistered and illegal securities offering. He decided that the offering for Kin tokens had met the three-part Howey test, which assesses whether there is an investment of money in a common enterprise with profits to be derived solely from the efforts of others.

It was a blow for Kik, which had been hoping to challenge the SEC in court. Back on Sept. 30, CEO Ted Livingston said the company was “obviously disappointed” by the ruling—and he suggested that an appeal may be filed.

Interestingly, these latest court documents don’t mention anything about a disgorgement, which would involve reimbursing those who purchased Kin tokens during the height of the ICO boom back in 2017. Instead, the SEC only needs to be given 45 days’ notice concerning any transactions related to these tokens that happen over the next three years.

Although the $5 million fine may seem like a slap on the wrist in comparison to the funds that were raised, it seems the legal expenses have taken its toll since the SEC issued its first subpoena in January 2018. Last year, the company announced that it was cutting 100 jobs and becoming an “elite 19-person team.”

The SEC shows its teeth

This is the latest fine that the SEC has managed to trouser from crypto and blockchain-focused companies that have held initial coin offerings in recent years.

A few months ago, Telegram gave up on its attempts to save the Telegram Open Network after the encrypted messaging app was accused of raising $1.7 billion through an illegal securities sale of Gram tokens.

On June 26, it was announced that Telegram had agreed to pay an $18.5 million penalty and return $1.2 billion to those who invested in the doomed project.

Although ICOs have died out since the heady days of 2017, between Kik and Telegram, the SEC has now essentially killed off the Simple Agreement for Future Tokens (SAFT), which was designed as a legal end-around to the SEC’s effective ban on ICOs.

In a telephone interview after Telegram abandoned TON, well-known cryptocurrency lawyer Stephen Palley told Modern Consensus: “This is what happens when you push against a regulator thinking money and lawyers will buy your way out.”

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Connor Sephton is a journalist with an interest in cryptocurrencies, personal finance, and financial inclusion—as well as the challenges the crypto industry faces in achieving mainstream adoption. He owns cryptocurrencies.