SEC and Kin Headed For a Collision Course Over Investment Prohibitions – Trustnodes

SEC and Kin Headed For a Collision Course Over Investment Prohibitions


Jay Clayton

The Securities and Exchanges Commission is to decide whether they are to take enforcement action against Kin over its token sale of circa $100 million.

“We’re Fighting Back,” said Ted Livingston, founder and CEO of Kik and Kin, highlighting a 30 pages long response to a Wells Notice issued on November 16, 2018.

They argue Kin is not a security, but a currency, showing as evidence the fact Kin is handling more transactions than bitcoin or ethereum.

The project said their privacy focused messaging app had come up with a new business model which could challenge the data mining  advertising model used by tech giants like Google and Facebook.

“This [data-mining] model does not align with Kik’s philosophy for multiple reasons. First, when the Company launched Kik Messenger, Livingston and Best believed that user data should be protected, not exploited, and that remains one of Kik’s core values today.

In other words, Kik is not willing to appropriate user data and sell it to advertisers and marketers, and especially not without the user’s consent and participation. This unwillingness to exploit user data puts Kik at a distinct disadvantage in the current digital advertising market,” they said.

The project instead experimented with Kik Points in 2014. “By completing polls and surveys, users earned Kik Points that they could spend on content within Kik Messenger, such as digital stickers (similar to emojis or emoticons).  Kik earned revenue by selling Kik Points to advertisers, who in turn paid consumers (with Kik Points) for answering surveys and polls within Kik Messenger,” they say.

This centralized design, however, had a problem: trust. “Because there was nothing to prevent Kik from creating more Kik Points, advertisers were concerned about future dilution or devaluation of the Kik Points they might buy. Similarly, because Kik could stop accepting Kik Points at any time, advertisers were concerned about Kik Points losing their value entirely. Moreover, by itself, Kik was unable to create enough spend experiences to keep up with demand, which further limited interest from advertisers,” they say.

Enter Kin, the blockchain based crypto token which can ensure its limited supply, wide availability, and can incentivize an entire ecosystem around it.

The sale of Kin was a sale of currency, they say, with the Securities Act explicitly excluding currencies from being classified as securities.

That’s what is to be decided by a court if the current four commissioners (two republicans, one democrat, and the former elite bankers lawyer as chairman) decide to take action.

There has been no allegation of fraud, Kin says. The matter concerns solely the non-registration as a security.

No court has passed judgment on whether tokens are a security. In fact, a number of state legislatures have passed laws to explicitly state tokens are not securities.

SEC however has nonetheless threatened a number of crypto projects with legal action. None of these projects has been brave enough to leave the matter to an actual court judgment.

One case we were awaiting was where a jury was to decide on whether ICOs are securities. Unfortunately, the defendant seemingly caved in and pleaded guilty before the matter was actually contested in an adversarial setting.

This approach of policemen usurping the judiciary in a constitutional breach of powers has led some projects to accuse SEC of making law through enforcement.

It is probable, therefore, SEC won’t take this Kin matter further as from their point of view it might be a gamble as the still independent judiciary may well say Kin is a currency and thus not a security.

Yet this lack of an actual independent judgment on the matter does suggest the checks and balances have been incredibly weakened to the point policemen act as judges, juries, and as in all cases so far there has been a settlement or a guilty plea, they have also been acting as executioners.

Europe has never been given a better opportunity to provide a real first class alternative, but their failure to unite makes them weak against the United States which has implicitly and at times explicitly exerted jurisdiction on EU citizens and companies.

Making this SEC v coders one of the biggest battle of this generation for these investment prohibitions will sell digital public spaces (open source code) to the rich at the potential risk of our enslavement.

Trump promised change, but like Obama before him, he too has failed in this specific matter for his promise of cancelling two laws for any new one has instead given us a library of laws applicable to the very new token economy.

While congress of course keeps failing at its job, giving rise to this idea of a jury parliament where the people can once more have an actual say and real representation.



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