The U.S. Securities and Exchange Commission (SEC) is suing Kik for allegedly running an unregistered securities sale when it launched an initial coin offering (ICO) for its kin token in 2017.
In a filing submitted Tuesday, the SEC said Kik violated Section 5 of the Securities Act of 1933, which requires offerings to be registered.
“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,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement. “Companies do not face a binary choice between innovation and compliance with the federal securities laws.”
As alleged in the SEC’s complaint, Kik had lost money for years on its sole product, an online messaging application, and the company’s management predicted internally that it would run out of money in 2017.
In early 2017, the company sought to pivot to a new type of business, which it financed through the sale of one trillion digital tokens. Kik sold its kin tokens to the public, and at a discounted price to wealthy purchasers, raising more than $55 million from U.S. investors. The SEC complaint alleges that Kin tokens traded recently at about half of the value that public investors paid in the offering.
Earlier this year, the company told the Wall Street Journal it planned to take the SEC to court if the agency brought an enforcement action against the project.
Last month, Kik CEO Ted Livingston said the company had already spent $5 million engaging with the SEC. Kik then launched a $5 million “Defend Crypto” crowdfunding campaign to support a potential lawsuit.
Kin is used across a suite of mobile apps. Kik has been using its ICO funds to support the development of new mobile marketplaces for people to earn and spend the cryptocurrency, which runs on its own blockchain.
In a statement Tuesday, Kik spokesperson Tanner Philp said:
“This is the first time that we’re finally on a path to getting the clarity we so desperately need as an industry to be able to continue to innovate and build things.”