SEC Twists Fact, Kik Messanger Team Says

Kik team prepared and submitted to the court a response to the SEC in a 131-page document, in which it accused the agency of distortion of facts
07 August 2019   2778

The confrontation between the US Securities and Exchange Commission (SEC) and the Kik messenger developer company continues. For example, the Canadian Kik Interactive prepared and submitted to the court a response tp the Commission in a 131-page document, in which it accused the agency of fraud and distortion of facts.

Kik claims that the Kin token is not a security, as claimed by the SEC, but is just a token built into the application for buying games, digital products or other services in Kik Messenger.

According to Kik representatives, the Commission must prove that Kin tokens were sold in violation of the Securities Act.

Since Kin is not itself a security, the SEC must show that it was sold in a way that violates the securities laws. The SEC had access to over 50,000 documents and took testimony from nearly 20 witnesses prior to filing its Complaint, yet it is unable to make the case that Kik’s token sale violated the securities laws without bending the facts to distort the record.
 

Eileen Lyon

General counsel, Kik

In particular, Kik notes that the agency quoted selective quotes or took words out of context when drawing up the charge.

In addition, company representatives are confident that SEC’s assumptions about Kik’s unfavorable financial position were included in the lawsuit for the sole purpose of exposing Kik in a negative light.

What really surprised us is just what lengths the SEC went to twist the facts. They cut quotes and [took them out of context] and that’s something we didn’t expect from the SEC.
 

Ted Livingston

CEO, Kik

He also noted that the SEC is trying to create the appearance that the Kin project was an act of despair, and not “than the bold move that it was to win the game, and one that Kakao, Line, Telegram and Facebook have all now followed.”

The SEC sued the Kik messenger developer, accusing her of conducting an unregistered sale of securities during the ICO in 2017.

However, Kik said it was "expecting something like that." It is worth noting that Kik announced the launch of a special fund to cover legal costs during the proceedings with the SEC back in May, since at the beginning of the year the company announced that it intends to challenge the Commission’s decision to recognize the project token as a security.

Court to Ban TON Tokens Release

U.S. District Judge P. Kevin Castel, of the Southern District of New York issued a temporary restiction, therefore supporing the SEC
25 March 2020   1019

The American court issued an order to the developer of the Telegram messenger, according to which he should refrain from the distribution of tokens of the TON blockchain project planned for next month.

According to CoinDesk, on March 24, the District Judge of the Southern District of New York, Kevin Castel, issued a temporary injunction, recognizing the SEC's arguments regarding the sale of unregistered securities by the company as reasonable.

The Court finds that the SEC has shown a substantial likelihood of success in proving that the contracts and understandings at issue, including the sale of 2.9 billion Grams to 175 purchasers in exchange for $1.7 billion, are part of a larger scheme to distribute those Grams into a secondary public market, which would be supported by Telegram’s ongoing efforts.

 

Kevin Castel

U.S. District Judge

According to the judge, this feature does not allow considering the Telegram offer as subject to exceptional conditions. He also noted that Telegram structured its project in such a way as to attract “the maximum number of primary buyers” against the background of the expectation of maximum profit at the time of launch.

Considering the economic realities under the Howey test, the Court finds that, in the context of that scheme, the resale of Grams into the secondary public market would be an integral part of the sale of securities without a required registration statement. 

 

Kevin Castel

U.S. District Judge

Conducting an analysis from the standpoint of the Howey test, the judge stated that buyers expected to profit from participating in the campaign. Moreover, although Telegram may argue that it will not become a guiding force in the further development of TON, “in fact,” it will be precisely this.

The judge agreed to distinguish between non-existent Gram tokens and securities purchased by TON investors, but refused to support Telegram's argument that Gram would be a commodity.

The Court rejects Telegram’s characterization of the purported security in this case. While helpful as a shorthand reference, the security in this case is not simply the Gram, which is little more than [an] alphanumeric cryptographic sequence.

 

Kevin Castel

U.S. District Judge

This is not the final decision, but it can serve as a powerful indicator of what position the court will adhere to further.