25 ms·

SEC Charges Kik With Conducting $100M Unregistered ICO

• nyx_ 7y ago
  "The complaint further alleges that Kik marketed the Kin tokens as an investment opportunity. Kik allegedly told investors that rising demand would drive up the value of Kin, and that Kik would undertake crucial work to spur that demand, including by incorporating the tokens into its messaging app, creating a new Kin transaction service, and building a system to reward other companies that adopt Kin. At the time Kik offered and sold the tokens, the SEC alleges these services and systems did not exist and there was nothing to purchase using Kin." Who even bought this stuff? Doesn't this throw up all the red flags of a scam ICO?
  • vorpalhex 7y ago
    > scam ICO It seems like you might of repeated yourself... This is the cryptocurrency roosters coming home to roost, no?
    • seibelj 7y ago
      Ethereum also had an ICO (paid in Bitcoin) and it delivered. Cosmos held an ICO and delivered. Not all ICOs are scams.
      • sieabahlpark 7y ago
        I think the point is those are the outliers and the majority are scams.
        • fastball 7y ago
          Ethereum is an outlier in the cryptocurrency world? Ethereum is the reason there have been so many ICOs in the past 3 years.
          • pxndxx 7y ago
            Yes, Ethereum is an outlier in the sense its ICO wasn't a complete scam.
            • jfk13 7y ago
              So it was a non-scam ICO in support of a platform for facilitating scam ICOs? Great.
              • gowld 7y ago
                You may not like how it's, but it's not fraudulent nor illegal. Similar to to sellers of alcohol, tobacco, or firearms operating legally.
              • dangero 7y ago
                You could make similar arguments about US Dollars
        • rolltiide 7y ago
          thats not distinct from funding models that you respect, don't you find that at least weird?
      • will_brown 7y ago
        >Ethereum also had an ICO (paid in Bitcoin) and it delivered. According to the SEC it was also an illegal offering of a security, and its receiving special treatment bc they considered it to have matured and no longer be considered a security, therefore grandfathered its grandfathered in unlike any other ICO. No one else is going to have the good fortune of being able to offer an unregistered security then mature into a non-security with the SEC acting first.
        • nwalker85 7y ago
          ....which is the point of this lawsuit, the determine if an ICO is a security or not.
        • magnamerc 7y ago
          ETH is more of a commodity than a share in some enterprise.
      • abalone 7y ago
        They “delivered” only because they sold wheelbarrows to the 49ers. As gold rush history will tell you, most fortunes were made by merchants not miners. Name a non-ICO-infrastructure ICO that isn’t a scam.
        • village-idiot 7y ago
          Ethereum as infrastructure is also a dicey proposition. It works, slowly, but it doesn’t seem like there’s a lot of demand for “dapps” outside ICO tokens, gambling, and the odd Ponzi scheme. The smart contract revolution at this point is complete vapor ware.
          • DennisP 7y ago
            Other popular smart contracts right now: an ETH-backed token that uses a derivative to maintain a fairly stable value, the Uniswap decentralized exchange, and games with non-fungible tokens for player assets.
            • dangero 7y ago
              “popular”
              • DennisP 7y ago
                At its peak the stablecoin contract held $2 billion, I'd say that's reasonably popular. None of this stuff is ready for the mass market because scaling is so limited, but that's on track to get about 1000X better over the next two years.
          • RexetBlell 7y ago
            Ethereum is currently being used for decentralized finance. It's not vaporware at all: https://defipulse.com/ https://defipulse.com/
            • dangero 7y ago
      • Ihfhcub 7y ago
        What did Ethereum delivery? What works on their centralised house of cards network?
      • deleted 7y ago
        [deleted]
    • penagwin 7y ago
      ICO is a fancy word for "Kick Starter" or crowdfunding. That's why all the crypto people are disagreeing with you. Are most ICO's scams? Yeah sadly. Are there lots of scams on Kickstarter/indiegogo/etc? Yes sadly. But an ICO itself isn't necessarily a scam (although I concede 99% of them are)
      • dangero 7y ago
        Kickstarter creates no expectation of profit by purchasers.
        • kaicianflone 7y ago
          The question is no longer if you have been scammed on Kickstarter, it's how many times have you been scammed.
        • penagwin 7y ago
          An ICO doesn't imply potential profit either. The problem is that most of them are run by scammers, which do promise profit.
      • vorpalhex 7y ago
        When I back a kickstarter, I'm probably going to get something like a signed book or a credit in a game - maybe not but at least most of the time. In an ICO, I get a... theoretical security? A kik kin coin that may or may not have value?
        • penagwin 7y ago
          I think you're confusing ICOs with market value. You don't back an ICO because its "value will go to the moon", you back an ICO because invents a new way for -- Creators to get paid instead of using advertisements, creative ways to organize some kind of distributed system. The scam comes from them not completing their promises and leaving with the money and no "product". The coin's value is irrelevant (as long as it isn't 0)
  • rococode 7y ago
    People lower their shields when scammy stuff comes from something they trust. Kik has been around for 8 years and was pretty popular at one point, so its long-time users wouldn't notice how much it seems like a desperate moneygrab.
    • bredren 7y ago
      One is the key aspects of ICO pumping was reputation building. So, launching a currency by leveraging a trusted or recognizable name lends credibility to the extent unsophisticated people might buy and assume “they know what they’re doing.”
  • deleted 7y ago
    [deleted]
  • ntgxo 7y ago
    "Doesn't this throw up all the red flags of a scam", the age-old question.
  • aey 7y ago
    The shmublic investors don’t have access to seed/series-A deals. I personally feel that rando cryptocurrency vs Uber post IPO has similar alpha, but obviously quite different beta.
  • will_brown 7y ago
    >Who even bought this stuff? Doesn't this throw up all the red flags of a scam ICO? What’s amazing is they raise nearly $100M selling the token, spent $5M in legal fees and then began raising additional legal fees (over $5M to date) from the public to continue to fight the SEC and anticipation of future litigation with the SEC. They raised $100M and can’t be bothered to use that for their own legal fees...And the public is apparently happy giving them millions more, it’s insanity.
    • snarf21 7y ago
      It isn't insanity if you used other cryptos to buy big on Kik/Kin and they only way to protect your position is to not have it go away.
      • will_brown 7y ago
        Well it’s throwing good money after bad. I believe it was Einstein who defined insanity as performing the same task over and over and expecting different results. If you invested/bought Kik because you wanted a “position” to make money on it, then it fits the definition of a security, so by throwing more money to fight the SEC to claim it’s not a security is a losing battle by your own “position”. The real irony is that the Kik token probably was structured as a non-security utility token, it’s only the CEO statements/marketing of the token as something that will become extremely valueable to investors that will come back and haunt them.
        • ericseppanen 7y ago
          https://quoteinvestigator.com/2017/03/23/same/ https://quoteinvestigator.com/2017/03/23/same/ Not Einstein. It's a quote from a 1981 Narcotics Anonymous pamphlet.
  • Nursie 7y ago
    >Doesn't this throw up all the red flags of a scam ICO? AFAICT many/most ICOs operated like this. Not all, certainly but the "raise money through hype about future values, with products far off or non-existant" model appeared to be the dominant one in '17 and '18.
  • einrealist 7y ago
    > Who even bought this stuff? My guess is that a lot of this money is dirty. There are also tax reasons, where money needs to be invested or is even expected to be lost.
    • dangero 7y ago
      Yes! ICOs were great money laundering opportunities.
  • djsumdog 7y ago
    > Who even bought this stuff? A buddy of mine from my home town called me up and needed a developer to work on his "crypto-currency hedge fund." This guy has always been a bit dodgy on looking for the least amount of resistance to the most money. I tried tell tell him all the reasons it was a bad idea. He claims he had done all the research (guy is not a programmer, couldn't pass Anatomy I the two times he took it in an attempt to start his career as a radiologist .. for the money -- sure as hell couldn't do the maths). He told me investments would be a minimum of $250k and he was promising (yes promising) 120% returns. ... I told him he needed to be careful, because with that type of pitch, he would most likely end up in a ditch somewhere two to to the head .. or jail .. and he should hope for jail. Besides telling him it was a bad idea, I told him he couldn't afford me. He told me he'd pay more than whatever I was making. I told him what I made .. and that I wouldn't take anything in crypto currency. That ended that. He had several tens of thousands in different crypto currencies (before the BTC bubble broke in 2018). So in response to your question: this kind of person.
    • harryh 7y ago
      It's important to note that while this person seems, you know, not very smart, the laws against unlicensed securities exist precisely to protect this kind of person from getting themselves in trouble. I'm no lawyer, but it certainly seems like Kik worked to circumvent these laws in order to raise a bunch of money to keep their business alive. I look forward to seeing where the SEC investigation/trial goes.
      • mamon 7y ago
        >> It's important to note that while this person seems, you know, not very smart, the laws against unlicensed securities exist precisely to protect this kind of person from getting themselves in trouble. Which is counterproductive, really. Natural selection is the only effective cure for stupidity known to the mankind. Stupid people should be allowed to make stupid mistakes and suffer all the consequences.
        • xwolfi 7y ago
  • meowface 7y ago
    Honestly, that sounds a lot less scammy than nearly every other ICO out there. Kik is an established company with a social network product used by millions. Given their market position, I think their idea isn't totally farfetched. I could be missing some aspects that indicate it is a total scam, but just from that paragraph alone (which is all I know about the topic), I could see warranted interest from investors. Look at all the payment integrations that've been added to platforms like Facebook lately. It isn't cryptocurrency, but the idea seems to be pretty similar.
    • Animats 7y ago
      But not an established profitable company. This is a money-losing startup looking for another funding round.
      • TeMPOraL 7y ago
        Vast majority of people don't understand how Internet startups are run. Even here on HN, people need frequent reminders. Myself, for a long time I believed tech startups are micro-R&D for new technologies. Couple years of HN and in the local startup community later, I finally realized that a lot of Internet startups tend to turn investor money into business model R&D - i.e. ever more innovative ways to break an existing market and siphon off enough wealth to get flipped and net the founders FU money. Regular people don't know any of that; they don't understand how the game is played, or why - they only enjoy free web services and cheap pirate taxi rides.
        • Animats 7y ago
          Myself, for a long time I believed tech startups are micro-R&D for new technologies. They were from about 1970 to 1998. Then came the dot-com boom. During that period, most VC firms made money. Now, VC funds as a a class are a net lose.
        • jpm_sd 7y ago
          "business model R&D" used to be called "fraud"
  • xorcist 7y ago
    > Doesn't this throw up all the red flags of a scam ICO? Is that a good or bad thing? There was a short period of time when there was immense profits to be had from buying and quickly flipping obvious scam ICOs.
    • pessimizer 7y ago
      Agreed. The question isn't whether something is a financial scam; at this point, depending on your feelings about certain structures, a large part of the US economy is made up of financial scams. The question is whether it's a viable financial scam, and this one was so viable that the government had to step in. Probably if they had invested in the right lobbyists and the right lawyers, they would have been able to engineer a level of indirection that this wouldn't have attracted attention. Maybe they actually have, and will lose this case as millionaires.
  • nprateem 7y ago
    > Who even bought this stuff? North Korea probably.
    • propter_hoc 7y ago
      Actually: > 167. [...] Kik declined to sell Kin to investors from certain countries, including Canada, China, Cuba, and North Korea.
      • buzzert 7y ago
        Why Canada?
        • propter_hoc 7y ago
          Per the complaint, Kik (a Canadian company) asked the Ontario Securities Commission whether the tokens would be considered a securities offering under Canadian law, and the OSC told them yes, so, Kik banned Canadian investors from participating in the ICO. However, Kik decided not to ask the SEC or any other foreign securities regulator their opinion, and just went ahead with the issuance in every other jurisdiction--except jurisdictions which companies are banned from doing business with, like NK and Cuba.
          • neokantian 7y ago
            As international users, we have a vested interest in reining in the proclivity of American government departments to engage in extraterritorial expansion. We should wish to see them lose or be made to lose.
      • bitxbitxbitcoin 7y ago
        This is HN. We all know that anyone from one of those countries that wanted to, could easily have put money into this just by changing their IP address.
  • dagw 7y ago
    Who even bought this stuff? A lot of 'investors' are firm believers in the Great Fool theory of investment. Basically they are completely aware that it is a scam, they're just banking on the fact that they can get in, take some profit, and get out before the rest of the world catches on that it is a scam.
• seibelj 7y ago
  While I look forward to the outcome of this, it's worth noting that the SEC has claimed that "airdrops", or simply giving away tokens to others for free, should also be considered securities, as well as "pre-mines", where you mine cryptocurrency before the public receives it. The SEC has an ever expanding view of what it should be responsible for regulating. I cannot understand how issuing a digital asset without receiving any money could fail the Howey Test.
  • toomuchtodo 7y ago
    You're giving away a security that is still considered a security. That doesn't mean it won't be regulated as a security.
    • seibelj 7y ago
      Yet Bitcoin and Ethereum are not considered securities by the SEC. So clearly the same sort of asset is considered a security sometimes but not other times, essentially whenever the SEC decides.
      • stingraycharles 7y ago
        > Yet Bitcoin and Ethereum are not considered securities by the SEC. Why is that ?
        • seibelj 7y ago
          Bitcoin and Ethereum do not pass the Howey Test because they are "sufficiently decentralized", primarily because no single enterprise is responsible for developing it. But there is no framework on how exactly one becomes sufficiently decentralized, and because Ethereum had an ICO and is not a security, we know there is a way to do an ICO without needing to be registered. Unfortunately the current regulatory framework is opaque. The SEC "knows them when they sees them" so to speak but cannot explain clearly how to avoid becoming a security. My hope is that this lawsuit will result in clear guidance on how to become a Bitcoin or Ethereum, which will significantly help boost the industry.
• flunhat 7y ago
  So what happens to Kik now? Funding-wise, I mean. The press release says that: "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." I'm guessing that they spent a decent amount of the money they raised through the ICO. If they have to give it back, will they have to take on even more funding from a VC at even worse terms?
  • bilbo0s 7y ago
    >If they have to give it back, will they have to take on even more funding from a VC at even worse terms? ... I think they are far more worried about being referred at this point. Who cares if you have try to pay back ICO investors? As long as you can stay out of prison, any terms are good terms. I suspect a good many people at Kik will be losing property they own, because this will definitely pierce the veil so to speak. But at times like this, only losing personal cash and property is a win in my book.
    • jdsully 7y ago
      Kik is a Canadian company, and based upon most Canadian business owners I know their personal assets are most likely off-shored in one of the popular Caribbean islands used for this purpose. Tax evasion is rampant here.
    • mrosett 7y ago
      Why do you think this will pierce the veil? I don’t know the rules around that.
  • CPLX 7y ago
    > If they have to give it back, will they have to take on even more funding from a VC That seems remarkably optimistic. The two likely options here seem to be dissolution with heavy fines for all involved, or something even more serious than that.
    • cthaeh 7y ago
• hartator 7y ago
  It does feel the only reason we had so many ICOs in the past was to escape SEC rules.
  • gowld 7y ago
    That's not the relationship. ICOs are scams, and they violate SEC rules, but there are so many because SEC had not enforced rules until recently.
    • hartator 7y ago
      Not all ICOs are scam. That said the main reason we had those was to able to reach investors directly. Even unaccredited ones. Trying to find a loophole in SEC rules.
• joshstrange 7y ago
  Are there legitimate uses for Kik past NSFW uses? I only ask because that is the only context in which I've ever seen Kik used. I didn't know if it was popular in other places (not the USA) for SFW purposes.
  • ChrisArchitect 7y ago
    only ever remember it being big with young kids/teens as a sort of alternative/escape from mainstream messenging apps before they jumped to other things like IG etc
  • mrguyorama 7y ago
    It is/was super useful for tinder bots to make redundant contact before being banned from the tinder app.
    • joshstrange 7y ago
      Tinder-communications-pivoting was definitely one of the big use-cases I've seen (Along with other adult social networks like bumble, grindr, scruff) for Kik. That and on NSFW subreddits it appears to be one of the top ways for people to establish communication outside of reddit.
  • JudgeWapner 7y ago
    I use it as a general e-friends chat service. It doesn't require giving your address book or phone number like WhatsApp (and presumably doesn't track you like all Facebook products do). It gives you anonymity, unlike regular texting. It doesn't have terrible Microsoft-UX like Skype. It does one thing and does it well.
    • joshstrange 7y ago
      Thank you for your response! I've honestly never even installed it, maybe I should check it out.
      • 7y ago
• mindcandy 7y ago
  Note that Kik has expressly stated that they have really wanted this case to go to court for some time now. They strongly believe that the SEC guidance so far has been vague and non-committal to the point of becoming damaging. They believe they have a case that Kin is not a security and that the Howey Test is being mis-applied to many cryptos. By going through with the suit they hope to fast-forward more concrete guidance from the SEC. https://unchainedpodcast.com/kin-sets-up-5-million-defendcrypto-org-to-take-on-the-sec/ https://unchainedpodcast.com/kin-sets-up-5-million-defendcry...
  • r00fus 7y ago
    Is their intention to set a precedent with a sympathetic court? I know a lot of other actions around the country are pushing the limits, hoping to get a favorable ruling and establish precedent (see: case vs. ACA being unconstitutional).
    • bredren 7y ago
      Now is the time to do it.
    • mikeleung 7y ago
      They are looking to be the test case to set a precedent in order to force clarity around securities laws that are outdated and unclear when being applied to cryptocurrencies
      • Alex3917 7y ago
        The law has been the same since the 1920s. Adding crypto to the mix has zero affect on whether or not something is a security offering.
      • Advaith 7y ago
        Interesting. The risk vs. reward seems apt in my opinion. If Kik ends up winning, it brings out clarity that a lot of people stand to benefit from.
      • 7y ago
• LiquidSky 7y ago
  >scam ICO No need to be redundant.
  • erikpukinskis 7y ago
    Not all ICOs are scams. In some cases people have taken the time to work out a set of incentives that allows a market that previously needed to be operated by a corporate entity to be operated without central control. Such an incentive scheme has intrinsic value equivalent to the coordinating body it replaces. An ICO for such a scheme is not necessarily a scam. Certainly the vast majority of ICOs are scams, but not all. The vast majority of beggars sob stories are lies, but not all are. Sometimes someone really is in a tough spot and needs a couple dollars.
    • behringer 7y ago
      Name one
      • arbol 7y ago
        Augur
        • drngdds 7y ago
          >Immediately after the site launched, users had created death pools — or assassination markets — on famous people. >Augur's user numbers dropped off sharply after launch in 2018: from 265 daily users in early July, to 37 on 8 August. Maybe not a scam, but this does not convince me of the value of ICO-backed projects
        • meowface 7y ago
          The common theme with this and some of the other answers is that they're actually adding value, and in a way that's directly related to cryptocurrency, rather than just providing a "greater fool" securities offering.
        • OldFatCactus 7y ago
• ChrisArchitect 7y ago
  Kik is Canadian technically no?
  • driverdan 7y ago
    It doesn't matter where a company is if it offers securities for sale to US citizens.
  • CryptoKid12 7y ago
    Yes it is, headquartered in Kitchener, Ontario, Canada
  • paulgb 7y ago
    From the last line of the article, Canadian regulators appear to be helping the SEC here: > The SEC appreciates the assistance of the Ontario Securities Commission.
  • sonnyblarney 7y ago
    Yes, but it was a a mostly US ICO. If it happens in the US it's subject to US regs. Funny enough, none of it is legal in Canada apparently and Canadian citizens were not allowed to participate in the ICO.
  • PatrolX 7y ago
    If you sell a security to a U.S. Citizen then the SEC can come after you no matter where in the world you're based.
• TehShrike 7y ago
  Does this mean azer can get his package back now
• jvanderbot 7y ago
  For those who didn't know (like me): The Howey Test determines that a transaction represents an investment contract if "a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party," https://www.investopedia.com/terms/h/howey-test.asp https://www.investopedia.com/terms/h/howey-test.asp
  • elliekelly 7y ago
    The major issue with Howey has always been that it doesn't account for situations where investors are investing for some benefit other than profit from appreciation or dividends. Howey is particularly difficult to apply when that "other benefit" is personal consumption or when investors are investing for a combination of profit and "other benefit" as is the case with Kin. For example, what if Mr. Howey had purchased the orange grove expecting to eat 10% of the oranges and leave the remaining 90% subject to the leaseback agreement originally at issue. Is the orange grove agreement still an "investment contract" if Mr. Howey eats 10%? What if he eats 50%? 90%? What if Mr. Howey planned to sell all of the oranges when the market price was over $X per pound and eat any oranges when the market price was below that amount? That's the Howey grey area in which Kin is operating. Many people likely purchased small amounts of Kin with the expectation that they might use some of it for in-app purchases and hold some anticipating a profit from it appreciating in value. Other cases that have been litigated in the wake of Howey that you might find interesting, though not necessarily helpful in applying Howey to cryptocurrency: - United Housing Foundation v Forman[1] (1975) where "stock" issued by a housing corporation that provided a reduction in rent was _not_ an investment contract (or security at all). - SEC v Edwards[2] (2004) where a fixed-rate leaseback agreement for payphones _was_ a security. - SEC v Lauer[3] (1994) where the court was... flexible in their interpretation of the Howey test, finding a "common enterprise" existed where there was only one investor. The Lauer opinion was particularly important for demonstrating that courts look to the "economic reality of the transaction" when determining whether something is or isn't a security. [1] https://supreme.justia.com/cases/federal/us/421/837/ https://supreme.justia.com/cases/federal/us/421/837/ [2] https://www.casebriefs.com/blog/law/securities-regulation/securities-regulation-keyed-to-coffee/definitions-of-security-and-exempted-securities/securities-and-exchange-commission-v-charles-e-edwards/ https://www.casebriefs.com/blog/law/securities-regulation/se... [3] https://www.courtlistener.com/opinion/1459162/ussec-v-lauer/ https://www.courtlistener.com/opinion/1459162/ussec-v-lauer/
• kibwen 7y ago
  The same Kik from the 2016 left-pad debacle on npm?
  • FlorianRappl 7y ago
    I thought the same ... I think it actually is the same.
  • Tade0 7y ago
    The same. Apparently that whole affair hasn't taught them anything.
  • elkos 7y ago
    For anyone (like me) that needs a reminder: https://blog.npmjs.org/post/141577284765/kik-left-pad-and-npm https://blog.npmjs.org/post/141577284765/kik-left-pad-and-np...
    • peeters 7y ago
      I'm confused from that summary why any of the left-pad debacle should be pinned on Kik. Maybe there was something behind the scenes I'm not seeing? From the post mortem NPM gave, this was entirely on Azer for rage quitting NPM (and for NPM for allowing it), fallout be damned. Even if you feel Kik bullied Azer into giving up the "kik" name (even though they made their case to NPM and deferred to them), that would only affect the kik package, not the 270 others Azer delisted.
  • jessaustin 7y ago
    If so, let's all stop and enjoy the schadenfreude. They bullied someone who had freely given his time and effort to the community. Perhaps he didn't react in the best way to that bullying, but Kik were the root cause of that. I hope the ill will they sowed during that episode has contributed to their troubles since then.
• JBiserkov 7y ago
  ... for left-pad!
• nostrademons 7y ago
  a16z's commentary on the case, posted here a couple weeks ago: https://a16z.com/2019/05/15/kik-and-the-sec-whats-going-on-and-what-does-it-mean-for-crypto/ https://a16z.com/2019/05/15/kik-and-the-sec-whats-going-on-a...
• CryptoKid12 7y ago
  Fight the good fight https://www.defendcrypto.org/ https://www.defendcrypto.org/
  • joosters 7y ago
    Did you mean https://defundcrypto.org/ https://defundcrypto.org/ ?
  • PunchTornado 7y ago
    yeah, like I'm going to send my money to some lawyers.
    • jessaustin 7y ago
      Maybe they wouldn't mind being paid in ICO?
• dragonwriter 7y ago
  What work is “officially” doing in the HN headline? Is there a practice of “unofficial lawsuits” by the SEC, or in general, that it is necessary to distinguish this “official” suit from?
  • elliekelly 7y ago
    Sort of. It's called a Wells Notice[1] and it essentially means that (barring some really excellent lawyering) charges are imminent. [1] https://en.wikipedia.org/wiki/Wells_notice https://en.wikipedia.org/wiki/Wells_notice
    • dragonwriter 7y ago
      A Wells notice is certainly a thing to distinguish from a suit, but does anyone ever refer to a Wells notice as a "suing" (perhaps "unofficially suing"), such that "officially suing" would need to be specified to make the distinction? (Yes, I realized that the HN title has changed to be closer to the source title, so this discussion is now about a title that doesn't exist anymore...)
      • elliekelly 7y ago
        Agreed, I've never heard anyone refer to a Wells notice as being "sued" (officially or unofficially!) but since there have been a few thread on HN about Kin/Kik's response to the Wells notice it was the only explanation for the wording I could think of.
• NelsonMinar 7y ago
  Has Kik cleaned up its child porn problem? Judging by a quick search, it's still the medium of choice for monstrous people in 2019. https://www.theverge.com/2017/8/6/16104280/kik-messenger-app-child-predators-report https://www.theverge.com/2017/8/6/16104280/kik-messenger-app...
  • macspoofing 7y ago
    >it's still the medium of choice for monstrous people in 2019. You posted a link from 2017
    • NelsonMinar 7y ago
      Yes I did. Which is why I asked if they've changed. And then today, in 2019, I did a search for "Kik child porn" and found several brand new convictions for people trading child porn over Kik from 2019. So I said "still the medium of choice". Would you like me to post all those 2019 links for you? I presumed you were capable of finding them yourself.
      • CountHackulus 7y ago
        Sure why not? Also your initial wording was vague, there's no need to be so angry. Just "here's some links for proof" and move on.
• thesausageking 7y ago
  So this is why they setup their "Defend Crypto" fund last week: https://www.defendcrypto.org/ https://www.defendcrypto.org/
• xmly 7y ago
  Time to refund? Good!
• fuddle 7y ago
  Looking at the price now, it's has a market cap of $18 million. It reached $987 million at one point. Quite the bubble! https://coinmarketcap.com/currencies/kin/ https://coinmarketcap.com/currencies/kin/
  • xs83 7y ago
    The have recently done a coin swap too - I have to assume that many people haven't swapped yet
• miguelmota 7y ago
  Seems like the SEC only creates new regulation after they see a beefy money grabbing opportunity.
  • OrgNet 7y ago
    they do
• flyGuyOnTheSly 7y ago
  >The complaint further alleges that Kik marketed the Kin tokens as an investment opportunity. Kik allegedly told investors that rising demand would drive up the value of Kin To be fair... Yes Kik did sell them as investments... claiming rising demand would drive up the price of Kin... which did indeed happen. The kin tokens increased in value over 10x from the price they were sold to investors at. It didn't last, of course. I still don't understand why they didn't get SEC approval before offering the token sale, however. They were savvy enough not to allow Canadian investors for that very same reason... because they're a Canadian company and did not want to get mixed up in unregistered securities sales in Canada.
  • btown 7y ago
    From the complaint https://www.sec.gov/litigation/complaints/2019/comp-pr2019-87.pdf https://www.sec.gov/litigation/complaints/2019/comp-pr2019-8... : > Kik has agreed to jurisdiction in the United States concerning disputes relating to Kin. When selling Kin to the general public, Kik required investors to agree that all disputes about the purchase and use of Kin would be heard by an arbitrator or court in the United States, specifically in the State of Delaware. So they should have known. And maybe they did, thinking that if they tried to register with the SEC their fundraise would not be allowed and the company would almost certainly declare bankruptcy; but that if they did not register, even after the DAO report, they'd at least have a chance of sneaking through, and if they were caught, they might avoid personal liability. Many people disobey the law out of desperation, and if nobody goes to jail, then disobedience becomes even more likely for those in such a situation.
    • flyGuyOnTheSly 7y ago
      >their fundraise would not be allowed and the company would almost certainly declare bankruptcy That was my best idea as well as to what they were thinking at the time. Take money now and worry about the consequences later, or go bankrupt now and worry about that now.
  • thesausageking 7y ago
    > I still don't understand why they didn't get SEC approval before offering the token sale, however. Because what they did was illegal and the SEC would never have approved it. To do it legally, they would've had to only sell to accredited investors and there's no way they raise $100m doing that.
• sonnyblarney 7y ago
  It's ridiculous that the SEC can't tell you what is and what is not going to work up front. My god, why should companies have to risk so much in this. Either they provide perfectly clear guidelines or they can screw off. Anything vague is extremely bad for business as it causes undue risk, confusion, lawyers galore. Also - timeframes matter. This event took place quite some time ago, it's totally unfair that the process takes this long. The briefing, roadshow materials, legalese should be presented to the SEC and they should 'approve or not', and if not, then they can be taken to the courts before the ICO so that everything is legal up front. I'm not one bit empathetic to Kik's ICO, if find it all kind of shady, but that should be made very clear before, not after actions are taken.
  • loceng 7y ago
    Crypto-"currencies" are relatively new - and many including myself see them as innovative Pyramid-Ponzi schemes. There's also clearly a lot of VC money involved now, and other less savvy people's money in them - the army of HODLers, so the SEC has to tread carefully. Would you prefer - would those companies prefer - being completely ban/blocked from operating until SEC understood it all? I'm guessing no. I'm guessing too that investors would have liked the protection though, as would society in general - those who got drawn in by the shallow hype and lost money.
  • vasilipupkin 7y ago
    this is not true, you can get a No Action letter from the SEC upfront. https://en.wikipedia.org/wiki/No-action_letter https://en.wikipedia.org/wiki/No-action_letter
    • andrew311 7y ago
      Unfortunately, getting a no action letter can take years and there is no guarantee you wilk ever get it. So far only one has been issued among probably numerous requests within the last year or two.
• modeless 7y ago
  This was inevitable. As I said two years ago[1], just listen to Kik's own words: "When we looked at raising another round [of VC funding], we asked ourselves how do we answer the question about how we will become a profitable business [...] We didn’t have an answer we really believed." ... so instead they decided to raise money from unsophisticated investors in an unregulated market, where nobody asks such inconvenient questions! No surprise that the SEC is upset. [1] https://news.ycombinator.com/item?id=15245656 https://news.ycombinator.com/item?id=15245656
  • colechristensen 7y ago
    The regulations indeed exist because fraud in this vein was prevalent and it made it difficult to compete if you weren't defrauding investors.
    • conanbatt 7y ago
      Please, thats ridiculous. It exists as a moat that punishes some and benefits another at the cost of the tax payer and the common investor.
    • CryptoPunk 7y ago
      Do you have any evidence for that? There are other ways of addressing fraud besides violating people's right to freely contract with other consenting adults, like punishing those who commit fraud to deter others from committing the crime, and public education campaigns. The idea that the government has a right to deem a certain class of investors as "unsophisticated", and thus better off deprived of the right to decide for themselves what to invest in, and prohibit an entire class of interactions, on the basis that too many instances of that class are fraudulent, upends basic principles of liberal society. The poorest households in the US spend 9% of their income on lottery tickets, showing that you can't legislate people out of misusing their funds. If anything, the attempt to do so deprives them of better investment opportunities, and better opportunities to learn how the investment world works. And this isn't free market idealism. The crypto/token investment market has become vastly more sophisticated over the last 4 years. Token sales that would have raised millions 4 years get nothing today. People need to have a bit more faith in other people, and in freedom.
• PunchTornado 7y ago
  let's not forget that kik was the company behind the npm debacle and bullied a developer to give up his namespace.
• theobon 7y ago
  For those who want to guide to reading the lawsuit check out this annotated version by Katherine Wu[1]: https://static1.squarespace.com/static/5ac136ed12b13f7c187bdf21/t/5cf6b874d6c27c00017d2f14/1559672949112/SEC+sues+Kik.pdf https://static1.squarespace.com/static/5ac136ed12b13f7c187bd... [1] https://www.katherinewu.me/writings/2019/6/4/annotated-guide-to-the-secs-complaint-against-kik https://www.katherinewu.me/writings/2019/6/4/annotated-guide...
• teslaberry 7y ago
  cypto is a scam. EVRERY CRYPTO ICO was a security. AND MORE IMPORTANTLY, ALL CRYPTO IS A FUTURES CONTRACT FOR PURCHASE OF A LICENSE FOR FUTURE ACCESS TO A DIGITAL SYSTEM. this includes NFC TOKENS WHERE THE CRYPTO IS A LICENSE TO OWN THE TOKEN AND EXERCISED UPON OWNERSHIP. the bottom line is that if you have a market for things that are being traded , and they are not consumed at the point of trade/exchange ( one of the objects doens't disappear) , then the objects , the digital objects can be stored for ever and are being traded for consumption potentially at some future date, or retrading again in the future. they are ALL FUTURES PRODUCTS to the extent they are potentially consumable. thus-----the entire last few years is a scam. the cftc shoudl have come in an put an end to everything then. they didn't...for a reason, to encourage financializaiton and bubble blowing. which might not be such a bad thing temporarily, but right now it's clearly a scam to lure in the dubmest money just like securitization was. so qui bono? and qui loso?
• khartig 7y ago
  For anyone interested, there is an annotated copy of the SEC document nicely done by Katherine Wu athttps://www.katherinewu.me/writings/2019/6/4/annotated-guide-to-the-secs-complaint-against-kik https://www.katherinewu.me/writings/2019/6/4/annotated-guide...
• PatrolX 7y ago
  SEC Enforcement Letter: Nov 16, 2018. https://www.kin.org/wells_response.pdf https://www.kin.org/wells_response.pdf
• brianhama 7y ago
  This filing makes it appear that Kik was attempting to scam investors. That is simply not true though. Take a look at the Kin Foundation’s github repos. This is one of the most active crypto projects there is. My company implemented Kin into our app with over 10 million users. 40 other apps have also implemented it. There are over 400,000 users spending Kin within our apps each month. Kik might have broken securities law in their offering to the public, but don’t confuse that with the resulting project also being fraudulent or a scam. It’s not.
  • VikingCoder 7y ago
    Is the technology a scam? You say no. Is the ICO a scam? Yes, it wasn't legal. "This filing makes it appear that Kik was attempting to scam investors." Yes. They were. They pretended their ICO wasn't going to break securities law.
    • brianhama 7y ago
      In hindsight that seems to be the case, but in 2017 at the time of the ICO, the laws and how the SEC would interpret them was much more uncertain. They clearly decided to take a huge risk and it backfired. I’m not saying that it’s a risk I would have ever taken myself though.
    • badfrog 7y ago
      > Is the ICO a scam? Yes, it wasn't legal. Not everything that's illegal is a scam. If somebody sells me cocaine and I'm happy with the product, it's illegal but nobody was scammed.
      • VikingCoder 7y ago
        Yes, that's true. However, many securities laws exist to protect investors. So, if you knowingly violate securities laws, there's a pretty good chance you are knowingly putting investors in a disadvantageous position. That's a textbook definition of a scam.
    • neokantian 7y ago
• PatrolX 7y ago
  Their market cap took a beating today: https://coinmarketcap.com/currencies/kin/#charts https://coinmarketcap.com/currencies/kin/#charts Kin ROI: -75%
• mark3141 7y ago
  Kik Responds To SEC Complaint > Eileen Lyon, Kik's General Counsel commented, "For the reasons set forth in our Wells Submission, the SEC's complaint against Kik is based on a flawed legal theory. Among other things, the complaint assumes, incorrectly, that any discussion of a potential increase in value of an asset is the same as offering or promising profits solely from the efforts of another; that having aligned incentives is the same as creating a 'common enterprise'; and that any contributions by a seller or promoter are necessarily the "essential" managerial or entrepreneurial efforts required to create an investment contract. These legal assumptions stretch the Howey test well beyond its definition, and we do not believe they will withstand judicial scrutiny." https://www.prnewswire.com/news-releases/kik-responds-to-sec-complaint-300862114.html https://www.prnewswire.com/news-releases/kik-responds-to-sec...
  • solveit 7y ago
    Well they certainly have the money to fight the SEC in court. It'll be interesting to see how this pans out, although I'm not very optimistic for Kik.
• CryptoPunk 7y ago
  The SEC does not decide the law. Courts do.
• stevefan1999 7y ago
  It is the kik that broke and triggered the left-pad fiasco a few years ago in the JS scene?
• m3kw9 7y ago
  If that ico was a black box, it basically isn’t different than a stock where you buy a unit of it and expect the price to go up. What else would normal ppl expect it to do?
• andrew311 7y ago
  There is a major issue at stake here that should deeply concern anyone who cares about innovation in the US. I feel that HN is getting too caught up in the "scam" rhetoric and missing the bigger picture. Whether or not Kin is a scam is an entirely different matter from whether or not Kin is a security. The SEC has jurisdiction over securities, but not over scams generally. There is a substantial debate as to whether or not Kin is a security. At the very least, a decent argument has been made that it is not. Clearly Kik and their lawyers think they can win. Personally, I largely agree with the logic laid out by Kik in their Wells Response to the SEC[1]. HN user elliekelly gave other great examples of of the difficulty in applying securities laws in cases like this[2]. We have to be very careful ceding ground to the SEC on what constitutes a security. This is absolutely worth fighting if you care about innovation in the United States. Many of the donors to Kik's Defend Crypto campaign couldn't care less about Kin. That is not the point. However, they do care immensely about the ramifications this case could have for businesses. Businesses should be experimenting with new ways to finance companies. Perhaps that is through the sale of tokenized products or virtual currencies. Maybe they will provide great alternatives to venture capital over the long term. The label of "security" is an onerous one that creates massive obstacles to that innovation, especially for small companies. If the SEC succeeds in labeling Kin a security, what could have been the beginning of an innovative step towards new business models for fledgling startups is now forever regulated away into obscurity in the US. Meanwhile, businesses in other countries get to keep experimenting. The lackluster guidance and unpredictable enforcement has already led to companies taking their business elsewhere. It's a shame really. If there is even a sliver of a doubt as to whether or not Kin constitutes a security, we should not be so quick to cede ground to the SEC. If we let the SEC go unchallenged, they will expand their reach, becoming more entrenched and widening the scope of what constitutes a security. Gaining ground back becomes harder over time, especially if the SEC wins court cases. If Kin truly is a scam, we have a multitude of ways to prosecute them without involving the notion of securities. If nothing else, we always have regular contract or tort law if there were any contractual misrepresentations or intent to defraud. We don't need the label of "security" or action from the SEC for these kinds of claims, and this approach would be perfectly adequate. There are a number of government agencies that could bring these sorts of cases and fight for the public. Trying to prove it is a security at the same time is simply regulatory overreach. Bottom line, maybe Kin is a scam (I don't think so), maybe someone should do something about it, but let's be careful about expanding the scope of what constitutes a security. There are plenty of ways to prosecute Kik without ceding that ground. Side point: if the SEC succeeds in labeling Kin a security this creates all sorts of logical incongruities with past no-action letters or lack of enforcement in other areas. For example, if Kin is a security, why were the San Francisco Giants given a no-action letter for pre-sales of stadium seats "all of which were initially sold to fans prior to the Park’s opening day" which could be resold through "a service that would facilitate the resale of Charter and Club seat licenses"?[3] Sure, the Giants made a buyer represent that they were "not acquiring the [seat] as an investment and has no expectation of profit", but do we really think that stopped people from buying with the intent to profit? ICOs put the same representations in some of their pre-sale agreements, and we all know that did not stop people. What amount of intent to consume vs resale is appropriate? Broadway theater shows do the same sort of pre-sales of seat licenses, and we all know how much people profit from the resale of successful shows. This checks all of the boxes of the Howie Test (paid money, expectation of profit, dependency on managerial efforts). How come the SEC does not bring action there? I don't see fair and even enforcement of the law, which really brings the efficacy of it all into question. [1] Kin Wells Response, https://www.kin.org/wells_response.pdf https://www.kin.org/wells_response.pdf [2] HN comment by elliekelly, https://news.ycombinator.com/item?id=20098363 https://news.ycombinator.com/item?id=20098363 [3] https://www.sec.gov/divisions/corpfin/cf-noaction/sfba022406.htm https://www.sec.gov/divisions/corpfin/cf-noaction/sfba022406...
• neokantian 7y ago
  According to https://www.kik.com/terms-of-service https://www.kik.com/terms-of-service, they seem to have chosen jurisdiction in Canada: "Kik Interactive Inc. is located in Canada at 420 Weber Street East, Unit I, Waterloo, Ontario, N2L 4E7." According to the article, "The Securities and Exchange Commission today sued Kik Interactive Inc", without clarifying in what jurisdiction they are suing them. It is about "the sale of one trillion digital tokens". It is therefore about the exchange of KIN tokens against other tokens such as BTC, ETH, USDT, or similar. The KIN token is traded on 10+ different non-jurisdictional exchange platforms: https://coinmarketcap.com/currencies/kin/#markets https://coinmarketcap.com/currencies/kin/#markets The American SEC cannot reasonably claim jurisdiction over the non-jurisdictional Ethereum platform, nor over any non-jurisdictional exchange platforms, because in that case, every country could do that too. If every country can do that, then no country can do that. Why? Well, in that case, KIK could trivially seek protection in North Korea or Russia, and prevent US enforcement by shielding under their nuclear umbrella. Concerning KIK's marketing communications, it is not clear who exactly can regulate such messages: the country of message origination or the country of message destination. We cannot allow US government departments to grab control over non-jurisdictional issues. That is absolutely not in the interest of international users. Therefore, it is necessary to encourage geopolitical adversaries of the USA to impede, thwart, and undermine any such attempt.
• Kiro 7y ago
  How can SEC charge a non-US company?
• coluf 7y ago
  Hatie Haun had a pretty good writeup about this case a while ago. https://a16z.com/2019/05/15/kik-and-the-sec-whats-going-on-and-what-does-it-mean-for-crypto/ https://a16z.com/2019/05/15/kik-and-the-sec-whats-going-on-a.... She'll be doing a follow up soon. I think projects who got some flak for selling only to accredited investors will be very happy right now.
• nwmcsween 7y ago
  Kik legal department is playing dumb to get billable hours, there is no other explaination. They will drag this out but SEC will probably ruin Kik in the long run