The legal battle between global messaging giant Kik and the United States Securities and Exchange Commission (SEC) has finally come to an end after the SEC filed a motion with the Southern District Court of New York to close the case with a $5 million penalty.
SEC had sued Kik back in June with the claims that Kik’s ICO was illegal and unregulated. The issue was the ICO sold near about $100 million worth of Kin tokens to financial specialists in the U.S. and abroad. The SEC said this one move implied that the firm disregarded the security laws in the nation.
This seems to be a much softer move from the SEC, considering what happened in the case of Telegram and its highly anticipated Ton ICO.
Kik agreed to the settlement, but it is yet to be accepted by the New York Court. The ruling imposes a $5 million civil penalty on Kik that must be paid within 30 days of the judgment. More significantly, it restrains Kik from violating Section 5 of the Securities Act by selling, transmitting, or advertising unregistered security.
A part of the ruling reads:
“The U.S. Securities and Exchange Commission (“Commission”) having filed a Complaint and Defendant Kik Interactive Inc. having entered a general appearance; consented to the Court’s jurisdiction over Defendant and the subject matter of this action; consented to entry of this Final Judgment; and waived any right to appeal from this Final Judgment and any other ruling in the above-captioned matter.”
Furthermore, Kik will also be giving the SEC a 45 days’ notice before issuing or offering the sale of cryptocurrencies. Telegram has also faced similar judgments and was compelled to abandon the project.
The SEC and its Howey Test
The Kik vs SEC lawsuit was a vital one for the cryptocurrency industry as a whole because it was perceived as the bellwether for future SEC action against ICOs, particularly those that were offered during the ICO boom in 2017-2018.
If Kik’s KIN token would have been classified as a security that would potentially put hundreds of similar ICOs under the SEC’s radar.
Based on the Howey Test the Court had ruled that KIN met the requirements to be classified as a security, which deemed Kik’s massive token sale completely illegal.
This approach from the SEC’s side has been considered an imperfect one by many industry figures. SEC commissioner Hester Peirce herself has argued about this. In an earlier speech, she had said:
“Given the role that individuals play in some token environments, either through mining, providing development services, or other tasks, the SEC must take care not to cast the Howey net so wide that it swallows the “efforts of others” prong entirely.”