This week, the United States Securities and Exchange Commission (SEC) continued its battle against the messaging platform Kik. Now, SEC regulators seek an early summary judgment against the firm. The news could signal more trouble for Kik executives as the firm continues to undergo economic woes due to the ongoing trial.
According to SEC documentation, regulators seek a permanent injunction against the company moving forward. Additionally, they want a multitude of penalties placed against the firm, as well as, a return of funds raised during its 2017 $100 million ICO. Notably, SEC officials stated that the funds were “ill-gotten gains.”
Kik vs SEC
Kik’s legal troubles began back in June 2019 when SEC regulators accused the firm of multiple infractions of securities regulations. Specifically, regulators claimed that Kik illegal sold securities to investors. Consequently, the company deprived thousands of investors the protections and required disclosures under the federal securities laws.
The SEC’s early judgment summary levies numerous allegations at Kik. Primarily, the documentation states that Kik participated in the offer and sale of investment contracts to the public. The company did so as a non-registered firm, despite the fact the received no exemption from registration by the SEC. The firm denies these allegations.
From the looks of the early judgment, the SEC has compiled a hefty amount of evidence against Kik. Regulators claim to have proof that Kik blatantly informed investors that KIN prices would increase as the platform developed and demand grew. Additionally, Kik representatives stated on multiple occasions that they would “undertake crucial work to spur that demand.”
Violation of the Securities Act
Interestingly, the SEC also claims to have “undisputed evidence” that shows the true motivation behind Kik’s ICO. Regulators believe the company’s intention was to hide years of losses incurred from its free messaging service.
Canadian-based Kik entered the market on October 19, 2010, as a freeware instant messaging mobile app. The app was unique in many ways and included a plethora of features. Most notably, anonymous messaging services via encryption. By May 2016, the company was a major player in the sector. At that time, the platform had 300 million registered users.
SEC on the War Path
Kik is just one of many firms unlucky enough to be on the receiving end of the SEC’s crackdown. There are numerous cases currently underway. For example, the SEC settled separate cases with start-ups companies Airfox and Paragon recently. Both firms raised more than $10 million each in initial coin offerings that weren’t registered. Discussing the call to arms, Stephanie Avakian, the SEC’s co-director of enforcement explained that regulators made it “clear” that all firms that issue securities are required to comply with existing statutes and rules governing the registration of securities.
In September 2019, Kik’s financial problems reached the point that the company announced they would stop messaging services. Shortly thereafter, MediaLab purchased the firm. Despite these major changes, the company continues to wrestle with the SEC on the legality of its 2017 ICO. For now, it looks like this battle might reach its end in the coming weeks.