Valenti Hanley PLLC

Digital tokens investments may violate securities laws

In early June, the Canadian social media giant Kik began seeking funding to fight the U.S. Securities and Exchange Commission (SEC). They estimated that it would cost 5 million to do so.

When the company initially went into business in 2017, they did so using $100 million in initial coin offerings (ICOs). Startup ventures often fund their efforts using cryptocurrencies like this.

Earlier in June, the SEC filed a civil complaint against Kik. They claimed that their sales of their ICOs were done through the illegal sale of securities. They noted that the "kin," the company's digital token qualifies as an investment. They noted that they consider it to be this because it offers the prospect of returns to early buyers.

In the SEC's filing, they also outlined how they once told investors that the ICO proceeds were going to be used to build a new venture whereby app users would use the kin to make purchases. They reportedly told them to expect profits from this venture.

Since their filing, Kik has been vocal about how they intended for the kin to be exchanged only on their platform. They noted that users have typically received them on through their apps as compensation for surveys. They noted that they've also used them to make in-app purchases. The SEC argues that they constantly came up with different ways that they could be used to boost their value.

This Kik lawsuit has forced many who operate in the blockchain industry to take note. Many analysts argue that the way that this case ultimately gets resolved may affect how other companies operate. It may also force the SEC to change how they regulate cryptocurrencies as well.

Kik has expressed a hope that the SEC will ultimately be able to devise a test to determine where digital tokens fall in terms of whether they're securities or not. Many of Kik's supporters argue that increased regulation of cryptocurrencies would drain company resources and ultimately stagger innovation.

When the SEC files suit against a company for securities violations, they do so with the backing of all the federal government's resources. They're sure to put up a strong fight. It's important that you have the support of an attorney if you're fighting such a case. They should be experienced in representing clients in regulatory matters and investigations here in Kentucky but also throughout the country.

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