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SEC Files Early Judgement in Kik Trial

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SEC Files Early Judgement in Kik Trial

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.

Specific Violations

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.”

SEC Seeks Early Judgement Against Kik

SEC Seeks Early Judgement Against Kik

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.

Kik

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.

Still Kik’in

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.

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David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com

Security Tokens

Germany – Crypto Custody License Receives Push-back from Banks

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Germany - Crypto Custody License Recieves Push-back from Banks

Germany’s crypto custody license was supposed to give blockchain-based firms access to the basic banking essentials. Despite this fact, stories continue to emerge of companies finding it very difficult to acquire banking services such as checking accounts. A closer look reveals some of the reasons why the German banking industry is still pushing back against crypto adoption.

Confusion, FUD –  Crypto Custody License

One of the main reasons German banks are hesitating to provide crypto-related platforms service boils down to a lack of clarity in the space. Both crypto firms and institutions have uncertainties and concerns related to applying for the crypto custody license. Until Germany’s Federal Financial Supervisory Authority (BaFin) clarifies these issues, such as what type of activities would qualify as crypto custody, banks will still error on the side of caution.

For example, there is a lack of transparency around crypto exchange operations. Banks are curious about how functionalities such as staking and lockup periods could affect the custodial license of an exchange. Currently, the law states that any crypto firm with access to customer’s private keys is a custodian.

Crypto Custody License

Additionally, in March, BaFin released a guidance stating that tokens originating from security token offerings (STOs) can be custodied by a crypto custodian without the use of a depository bank. Shortly thereafter, regulators issued additional guidelines regarding the management, IT, and security requirements set for crypto-related businesses seeking licensing. Importantly, BaFin states it intends to create more rules focused on operational risks in the near future.

Stifling Bank Participation

This “to-be-announced” approach is enough to keep Germany’s major banking institutions on the sidelines for now. In fact, only tech-focused service providers contributed to the space so far. Next-generation banks, such as SolarisBank, continue to slowly propagate the sector. Solarisbank opened a location in Germany in December 2019.

Solaris via Homepage - Crypto Custody License

Solaris via Homepage – Crypto Custody License

Lack of Banking

In a recent interview, Matthias Winter, partner at Eversheds Sutherland Germany discussed how the lack of banking is a real issue facing the market. He explained that there is “no legal reason why” banks are hesitating to take on crypto clients. Winter described “confusion” as the main hurdle the industry needs to overcome.  Additionally, he spoke on how banks function on a risk versus reward premises and opening a checking account for crypto-firm leaves them exposed to future regulatory changes

Notably, Winter also spoke on how the changes could affect the market. If, or rather when, BaFin clarifies these inconsistencies, there will be a gold rush to the market. In essence, banks would need to acquire crypto custody firms to gain access to the technology as fast as possible.

Crypto Storage Deutschland GMBH

To find examples of how this market confusion wreaks havoc on the industry, you need not look any further than Crypto Storage Deutschland GMBH. This firm underwent a real struggle when they decided to open a branch in Germany to take advantage of the new regulations. Executives went to no less than 15 different banks before they were able to get a basic checking account.

Discussing the tribulations, Stijn Vander Straeten, CEO of Crypto Storage AG cited a plethora of difficulties his firm encountered. Straeten described a scenario where you are up against the institutional banking arm. He explained that crypto companies aren’t “making them money by asking for checking accounts“, and as such, they are not a priority by any means.

White-Label Solution for Banks

Notably,  Crypto Storage AG recognizes the need to secure digital assets. The firm currently offers a white-label solution for banks that want to offer the services to their clientele without taking on the risks associated with emerging markets.

Germany Moves Forward –  Crypto Custody License

German regulators appear to be moving, albeit slowly, closer to the digitization of the markets. Every day that passes signals more growth and development in the country’s blockchain sector. Hopefully, in the coming months, BaFin provides banks with the specifics they need to give firms access to banking essentials. If not, Germany risks falling behind in the global race to tokenization.

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Lawsuits Goes After Some of the Largest Names in Crypto

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Lawsuits Goes After Some of the Largest Names in Crypto

In what appears to be a broad swipe at the crypto sector this week, multiple lawsuits filed with the Southern District of New York claim wrongdoing against a myriad of blockchain-based firms. The class-action lawsuits allege wrongdoing on the part of crypto heavyweights such as Binance, Block.one, BitMEX, KayDex, BProtocol, Status and TRON Foundation, just to name a few.

According to court documents, the latest suit lists three plaintiffs – Chase Williams, Alexander Clifford, and Eric Lee. Interestingly, Roche Freedman is the firm heading the lawsuit. You may recognize the name from their recent lawsuits against Bitfinex and Tether. Additionally, they led the cases against Craig Wright and Bitfinex in the past.

Crypto Lawsuits – Details

The new lawsuit lists eleven companies in violation of regulations. These companies span the entire crypto sector.  Tokens such as ELF, CVC, TRX, TOMO, SNT, and others are listed for their use of IEO and ICO models in the past. The suit claims these tokens are unregistered securities. As such, the token made agreements with exchanges in violation of Section 5 of the Exchange Act.

Section 5 via Cornell Law School

Section 5 via Cornell Law School

The violations also extend to the named exchanges. The lawsuit lists KuCoin, Block.one, Quantstamp, Civic, and Binance as exchanges who sold unregistered tokens. Plaintiffs argue that these exchanges didn’t possess the required broker-dealer license in the U.S. Importantly, the plaintiffs believe that the SEC clarified in the past that the listed tokens are securities.

The suit also lists several crypto stars specifically. For example, Changpeng Zhao (CEO Binance), Vinny Lingham (CEO Civic), Justin Sun (TRON), Brendan Blumer (Block.one) and Dan Larimer (EOS) are all named in the suit.

Serious Allegations

The allegations are not trivial, For example, the trio argues that tokens such as TRX deceived investors about their purpose and level of decentralization. The suit claims that the centralization was “not apparent at that time.” It was only after the passage of time that investors gained the necessary insight to determine this. The suit states that there was a clear delay before the “issuer’s intent, the process of management, and success in allowing decentralization to arise”  become apparent. In this way, the allegations state investors were “misled into believing that TRX was something other than security when it was a security.”

Taking on the Crypto Industry

This case appears to be an attack on some of the most important firms, exchanges, tokens, and people in the crypto sector. The large scope of allegations and the global nature of the case will cause delays along the way. Consequently, it could be a while before this trial makes its way to the courtroom.

Lawsuits for the Stars

It’s hard to imagine a scenario in which the plaintiffs win this case. They would need to establish numerous precedents during the trial. These new rulings could stifle innovation in the US blockchain sector for years to come. As such, you can expect to see a measured response to this lawsuit in the coming weeks.

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STOMarket Adds Mt Pelerin – MPS Token

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STOMarket lists Mtperelin

This week, the research and analytics firm, the STOMarket announced the addition of the first international security token to its tracker. Importantly, researches chose the Swiss tokenization platform, Mt Pelerin Group as the project to receive this honor. Now, potential, and current MPS token investors can monitor market developments easier than ever before.

Currently, the STOMarket hosts the largest repository of live security token data available globally. The firm has held on to this title since it first entered the market in 2018. Importantly, the group was the first data aggregator in the digital securities industry. As such, STOMarket researchers gathered primary offering data for over 300 STOs to date.

Mt Pelerin Group SA Tokenized Shares

The decision to list MPS tokens makes sense for a number of reasons. Primarily, the Mt Pelerin Group SA is one of the first tokenized shares to provide direct and full ownership to token holders. This strategy differs greatly from companies that utilize tokens simply as a form of tethered ownership rights. In this instance, the token is the actual share.

MPS Token

As part of the strategy, the Mt Pelerin Group tokenized its 2018 cap table. Interestingly, 5% of these tokenized shares were sold at a public offering. Importantly, no US investors were permitted to participate in the event. Notably, the group chose to make MPS tokens ERC-20 compliant.

MPS Token Data via STOMarket

MPS Token Data via STOMarket

Currently, Ethereum host the largest number of security tokens in the market. As such, ERC-20 compliant tokens enjoy added interoperability when compared to other protocols in the space. This interoperability comes in the form of more wallets, Dapps, and platform options. Already, the MPS token trades on the Uniswap Decentralized Exchange.

Mt Pelerin Joins the Ranks – STOMarket

Discussing the important milestone, Arnaud Salomon, CEO of Mt Pelerin stated that his team was “thrilled” to see the MPS token listed on stomarket.com. He described how this decision places his project in line with other “industry trailblazers.” Lastly, he described how the addition allows investors and analysts to monitor this unique token’s growth.

STOMarket Growth

Not surprisingly, the STOMarket continues to expand its role in the market. For example, in 2019, the firm launched support for secondary trading transactions. Immediately, investors gained access to important data on the six largest security tokens in the market. Since then, the group has added multiple tokens. Today, the firm is building advanced support for hourly security token pricing, trading volume, and market cap updates internationally.

Future Listings

As part of the STOMarket’s early response strategy, the company works closely with security token issuance platforms and exchanges. Notably, the firm has data partnerships with MERJ, BlockStation, Tokenise, just to name a few. Discussing the important role the company plays, Marko M. Hafez, Co-Founder and CEO of Blockstation explained how researchers took the “initiative to centralize and publicize STO and Tokenized IPO listing.”

STO Data Access

Providing the STO market with live trading data continues to be a critical role in the space. Thankfully, the STOMarket makes it easy for anyone to monitor and share data on developments in the industry. You can expect to see these researchers play a more pivotal role in the market as STO adoption continues to expand in the coming months.

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