
SEC Charges Kik With Conducting $100M Unregistered ICO - khartig
https://www.sec.gov/news/press-release/2019-87
======
modeless
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
The regulations indeed exist because fraud in this vein was prevalent and it
made it difficult to compete if you weren't defrauding investors.

~~~
CryptoPunk
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.

~~~
arcticbull
You’ve got this backwards. Anyone can sell securities to any investor if the
company they’re selling shares in can commit to providing regular audited
financial disclosures showing they’re not frauds. It’s on the product being
brought to market to show it’s fit for sale, not for the investor to show
they’re “sophisticated.” If they show they’re sophisticated they can elect to
waive the reporting requirements. You could do this for your personal C Corp,
it’s just a lot of overhead you may deem not a good use of capital.

Kik is choosing not to become a “public” company in that they don’t want to
file disclosures. They’re trying to circumvent the rules that show they’re
operating above board.

~~~
colechristensen
>Anyone can sell securities to any investor

 _can_ being the operative word. There is a very significant market for
investments where "sophisticated" – er – Accredited Investors get access to
purchase securities that are not available to the public.

Frustration from people who want to but cannot access this market is real and
arguably valid, a balancing act between preventing fraud and granting access
which is tipped _a bit_ too far towards not necessarily preventing fraud but
restricting access for the benefit of a few. (on the other hand before you go
public there is a benefit to only having investors that really know what they
are doing, the rabble of small time less knowledgable investors can be a
business risk before your company is ready for the public)

What I am saying is that the people spouting nonsense come from a place where
there is truth, but so many people know so little about it that good
discussions are hard to come by.

~~~
arcticbull
I do agree with you, though access to private market equity isn’t a sure win
by any means. A startup fails to raise their next round of funding 90% of the
time every time. The riches are survivorship bias largely. This also doesn’t
solve for deal flow which you have to figure out yourself anyways, and to get
the equity “clearly” headed for the top you better be able to demonstrate
value. You can already access “private market” equity via crowdfunding terms
in the JOBS act but those exchanges exhibit heckin adverse selection issues.

The reality is if you’re a high profile founder with a great idea and traction
you can get money from mostly everyone while maintaining a nice clean cap
table. If you aren’t, you then raise from “suckers” (see the ICO market).

It's as though some of the libertarian leaning commenters think these rules
were brought in because the government was tired of seeing so many poor people
become wealthy. The reality is the government was tired of seeing so many poor
people get rekked and thrown into the welfare system, what little of it there
is here.

tl;dr: getting rich isn’t easy and deregulation is likely to cause more harm
than good.

------
nyx_
"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?

~~~
meowface
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
But not an established _profitable_ company. This is a money-losing startup
looking for another funding round.

~~~
TeMPOraL
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
_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.

------
mark3141
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...](https://www.prnewswire.com/news-releases/kik-responds-to-sec-
complaint-300862114.html)

~~~
solveit
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.

------
mindcandy
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-
defendcry...](https://unchainedpodcast.com/kin-sets-up-5-million-defendcrypto-
org-to-take-on-the-sec/)

~~~
duxup
Doesn't everyone publicly look forward to proving their case in court when the
inevitable legal battle is obvious?

Not many folks say "Oh man I don't want the SEC to sue me, I'm gonna get
creamed in court!"

~~~
Shivetya
Here is the deal though, the SEC employs administrative law judges (ALJs) who
even the President cannot remove and generally are immune electoral control
and accountability

The SEC also enforces gag orders on settlements to hide the proceedings and
discovery from the public which only allows them to continue their abuses of
the system.

A common thread among SEC settlements, also in CFTC and CTFB settlements is
summed up from a recent SEC agreement

"mak[ing] any public statement denying, directly or indirectly, any allegation
in the [SEC’s] complaint or creating the impression that the complaint is
without factual basis"

So basically you have no recourse against government agencies whose quasi
legal status pretty much makes them immune to the checks and balances as
specified in courts. If you want a closer to home comparison, FISA courts
operate pretty much the same way. There is no disclosure other than what the
government wants you to know and they have the full resources of the US
government to take you down, the common tactic is to bankrupt individuals or
threaten it to get the deals they want.

~~~
Animats
Huh? Most SEC settlements are public. The SEC issues a press release. Here's a
typical one.[1]

As for settlements with the terms "mak[ing] any public statement denying,
directly or indirectly, any allegation in the [SEC’s] complaint or creating
the impression that the complaint is without factual basis", that's what
pleading guilty looks like in a civil enforcement matter. You can't say "yes,
we did it, and we'll pay the penalty rather than going to trial" to the SEC,
and then turn around and say publicly "we didn't do it".

------
jvanderbot
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
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/se...](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/)

[3] [https://www.courtlistener.com/opinion/1459162/ussec-v-
lauer/](https://www.courtlistener.com/opinion/1459162/ussec-v-lauer/)

~~~
andrew311
100% agree on this assessment and the difficulty of applying securities law.
The application of the Howey test is so open for debate that it becomes
uncomfortably subjective. See my comment here:
[https://news.ycombinator.com/item?id=20101984](https://news.ycombinator.com/item?id=20101984)

~~~
elliekelly
Even if tokens aren’t a security (and although I understand both sides of the
debate it’s my professional opinion that they are) they are most certainly a
commodity. So the battle over jurisdiction is really between the SEC and the
CFTC, not between the SEC and no oversight at all.

Interestingly, most of the points you raised (financing innovation,
alternative to VCs, etc.) would put tokens such as Kin squarely in the
“securities” bucket instead of the “commodities” bucket.

Regulation is coming for cryptocurrency and regulation is _needed_ for
cryptocurrency. And the industry would be far better served by working with
their future regulators to establish reasonable guidelines rather than
fighting them in court.

------
seibelj
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.

~~~
andrewmutz
The continuous pump-and-dump activity that you see in the crypto space is a
clear demonstration that they _should_ be regulated by the SEC.

Regulation is unpopular among the people inside the regulated industry, but it
protects society as a whole.

~~~
nostrademons
It's often the other way around: regulation is popular among people inside the
regulated industry (it keeps competitors out, while being treated as "just
business as normal" by employees of the regulated industry), while being
unpopular with potential new entrants on the outside.

The only industries that really fight regulation are those where there's
currently a mad scramble of new startups trying to gain position (see eg. dot-
coms in 1999 or crypto in 2019). Nurses don't fight HIPAA, bankers don't fight
margin requirements, contractors don't fight building codes, brokers don't
fight broker licensing, and daycares don't fight safety standards.

~~~
miohtama
Banks lobby against regulation that would protect the consumer, make pricing
more transparent and generally hurt banks' bottom line.

[https://www.huffpost.com/entry/auction-2012-banks-lobby-
wash...](https://www.huffpost.com/entry/auction-2012-banks-lobby-
washington_n_1240762?guccounter=1)

Corporate lobbying has not been that strong in EU, where SEPA wire transfers
are fee and merchant card fees reasonable capped. And now as the latest PSD2
directive the banks must give you an API access to your own bank account.

~~~
linuxftw
Banks are a special case. Much of the modern banking system would be
considered fraud 100 years ago, but banks were among the first to figure out
that they can put pretty much anything into a financial contract and it will
be binding.

The US literally created the FDIC because banks are allowed to gamble with
depositor's money.

------
flunhat
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
> _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.

~~~
mrosett
Why do you think this will pierce the veil? I don’t know the rules around
that.

------
brianhama
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
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.

~~~
badfrog
> 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
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.

------
hartator
It does feel the only reason we had so many ICOs in the past was to escape SEC
rules.

~~~
gowld
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
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.

------
flyGuyOnTheSly
>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
From the complaint [https://www.sec.gov/litigation/complaints/2019/comp-
pr2019-8...](https://www.sec.gov/litigation/complaints/2019/comp-
pr2019-87.pdf) :

> 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
>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.

------
joshstrange
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.

~~~
JudgeWapner
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
Thank you for your response! I've honestly never even installed it, maybe I
should check it out.

~~~
dagenix
Kik is being sued by the SEC for allegedly conducting an illegal securities
offering. And it seems they clearly knew it was a securities offering, because
they didn't sell to residents of their home country. They didn't disclose that
they were near bankruptcy or that their service was wildly unprofitable -
information that would have been useful for investors and that a legal
securities offering or VC fundraising round would have made known to
investors.

I'm not sure what about all of that makes them seem trustworthy. I guess they
haven't been caught selling user data - but given that they allegedly
committed fraud to keep the company afloat, I don't know why you would trust
them not to.

------
theobon
For those who want to guide to reading the lawsuit check out this annotated
version by Katherine Wu[1]:
[https://static1.squarespace.com/static/5ac136ed12b13f7c187bd...](https://static1.squarespace.com/static/5ac136ed12b13f7c187bdf21/t/5cf6b874d6c27c00017d2f14/1559672949112/SEC+sues+Kik.pdf)

[1] [https://www.katherinewu.me/writings/2019/6/4/annotated-
guide...](https://www.katherinewu.me/writings/2019/6/4/annotated-guide-to-the-
secs-complaint-against-kik)

------
fuddle
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
The have recently done a coin swap too - I have to assume that many people
haven't swapped yet

------
thesausageking
So this is why they setup their "Defend Crypto" fund last week:

[https://www.defendcrypto.org/](https://www.defendcrypto.org/)

------
NelsonMinar
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...](https://www.theverge.com/2017/8/6/16104280/kik-messenger-app-child-
predators-report)

~~~
macspoofing
>it's still the medium of choice for monstrous people in 2019.

You posted a link from 2017

~~~
NelsonMinar
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
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.

------
kibwen
The same Kik from the 2016 left-pad debacle on npm?

~~~
elkos
For anyone (like me) that needs a reminder:
[https://blog.npmjs.org/post/141577284765/kik-left-pad-and-
np...](https://blog.npmjs.org/post/141577284765/kik-left-pad-and-npm)

~~~
peeters
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.

------
nostrademons
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-a...](https://a16z.com/2019/05/15/kik-and-the-sec-whats-going-on-and-what-
does-it-mean-for-crypto/)

------
sonnyblarney
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.

~~~
vasilipupkin
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
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.

------
TehShrike
Does this mean azer can get his package back now

------
coluf
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-a...](https://a16z.com/2019/05/15/kik-and-the-sec-whats-going-on-and-what-
does-it-mean-for-crypto/). 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.

------
m3kw9
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?

------
CryptoKid12
Fight the good fight
[https://www.defendcrypto.org/](https://www.defendcrypto.org/)

~~~
PunchTornado
yeah, like I'm going to send my money to some lawyers.

~~~
jessaustin
Maybe they wouldn't mind being paid in ICO?

------
khartig
For anyone interested, there is an annotated copy of the SEC document nicely
done by Katherine Wu
at[https://www.katherinewu.me/writings/2019/6/4/annotated-
guide...](https://www.katherinewu.me/writings/2019/6/4/annotated-guide-to-the-
secs-complaint-against-kik)

------
PunchTornado
let's not forget that kik was the company behind the npm debacle and bullied a
developer to give up his namespace.

------
LiquidSky
>scam ICO

No need to be redundant.

~~~
erikpukinskis
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
Name one

~~~
arbol
Augur

~~~
drngdds
>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

------
stevefan1999
It is the kik that broke and triggered the left-pad fiasco a few years ago in
the JS scene?

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ChrisArchitect
Kik is Canadian technically no?

~~~
paulgb
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.

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JBiserkov
... for left-pad!

------
PatrolX
Their market cap took a beating today:

[https://coinmarketcap.com/currencies/kin/#charts](https://coinmarketcap.com/currencies/kin/#charts)

Kin ROI: -75%

------
dragonwriter
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
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
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
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.

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nwmcsween
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

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PatrolX
SEC Enforcement Letter: Nov 16, 2018.

[https://www.kin.org/wells_response.pdf](https://www.kin.org/wells_response.pdf)

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miguelmota
Seems like the SEC only creates new regulation after they see a beefy money
grabbing opportunity.

~~~
OrgNet
they do

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Kiro
How can SEC charge a non-US company?

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CryptoPunk
The SEC does not decide the law. Courts do.

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andrew311
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...](https://www.sec.gov/divisions/corpfin/cf-
noaction/sfba022406.htm)

------
xmly
Time to refund?

Good!

------
neokantian
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.

