
Kik and the SEC: What’s Going on and What Does It Mean for Crypto? - karanbhangui
https://a16z.com/2019/05/15/kik-and-the-sec-whats-going-on-and-what-does-it-mean-for-crypto/
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StavrosK
I really dislike the ongoing usage of the word "crypto" to mean
"cryptocurrency", i.e. "cryptographical currency". I can never tell if
something's happening to ICOs or cryptography.

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JasonFruit
This is especially difficult when Kik is involved, since it uses cryptography
and is involved in cryptocurrency. I was interested until I saw it was about
ICOs.

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feanaro
What does Kik use cryptography for?

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tveita
> 50% of participants in the token sale purchased less than $1000 of Kin,
> which seems more consistent with a consumptive use vs. investment purpose
> argument.

So 50% purchased _more_ than $1000. To do what, buy stickers and themes?

I'd wager than even the "under $1000" crowd will be 90% cryptocurrency
investors holding it as part of a "balanced" portfolio.

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pavlov
That line makes the post seem tonedeaf. Maybe "less than $1000" is the
definition of throwaway consumption money for someone who works at Andreessen
Horowitz, but for many of the hopeful retail investors in 2017 ICOs, it may
have been a large chunk of their savings.

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ilaksh
The proposed Token Taxonomy Act is relevant.
[https://www.congress.gov/bill/116th-congress/house-
bill/2144...](https://www.congress.gov/bill/116th-congress/house-
bill/2144/text)

I think its really necessary to differentiate between ICOs and cryptocurrency
in general.

~~~
williamscales
The distinction between securities and "digital tokens" as the proposed bill
refers to them appears to be this:

> [a digital token] is not a representation of a financial interest in a
> company or partnership, including an ownership interest or revenue share

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aakilfernandes
IANAL, but:

The interesting thing about securities is that although we think of a security
as a "thing" (like Kin) its actually a transaction - as in a "securities
transaction". Meaning with two transactions involving Kin, one transaction
could be a securities transaction, and the other could not.

This is more obvious when you think of the original Howey test. Selling an
orange grove is not a securities transaction, but selling an orange grove
where you also promise to cultivate the asset for the profit of the investor
is.

Selling $5 of Kin in to a Kik user doesn't sound like a securities
transaction, but selling $5 Million to a VC fund does (though probably one
exempt from registration).

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elliekelly
Sort of - but it's more about intent/expectation than "thing" vs
"transaction." A security _is_ a thing. The _Howey_ test is how we determine
whether an orange grove is a security or a deed. The problem with _Howey_ is
that it doesn't address situations where investors aren't investing
exclusively for "profit" but might be investing for some other benefit to be
derived from the use or enjoyment of the underlying asset. So someone might
purchase $500 of Kin with the expectation that they'll sell if it reaches $X
and regardless they'll spend at least some of it on mini games.

They expect to consume at least some of the coins... but they also anticipate
potential profit from some of the coins.

So are the coins "securities?" Are only some of them? (Presumably, $500 -
whatever the buyer intended to consume.)

You can see that _Howey_ 's focus on investor expectation isn't particularly
helpful in where that line is drawn.

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aakilfernandes
In United Housing v Foreman, a sale of stock was considered not to be a
securities transaction, even though a stock is explicitly a security.

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elliekelly
The court determined the "stock" was not a _security_. Calling something
"stock" creates a rebuttable presumption that it's a security but the
purchasers of the co-op "stock" didn't have any possible expectation of profit
(the "stock" couldn't appreciate in value, would not pay dividends, was non-
transferable, etc.) so it failed the _Howey_ test. Merely calling something
stock does not make it so.

You might find SEC v Lauer[1] interesting. Where a non-existent hypothetical
investment was determined to be a security. As well as SEC v Edwards[2], where
a fixed-rate leaseback agreement for payphones _was_ determined to be a
security.

[1] [https://caselaw.findlaw.com/us-7th-
circuit/1054989.html](https://caselaw.findlaw.com/us-7th-circuit/1054989.html)

[2] [https://caselaw.findlaw.com/us-11th-
circuit/1156201.html](https://caselaw.findlaw.com/us-11th-
circuit/1156201.html)

~~~
aakilfernandes
Ah. Yes I think Foreman was a bad example of what I was trying to get at.

I think my main point was that if Howey had 100 fungible orange groves, and
one was sold as a security and 99 were sold straight up, that wouldn't make
all 100 orange groves as a security, would it?

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gcb0
how does the law work when you did something before it was illegal? or why
it's not the case here?

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dmoy
Depends on the country. The phrase you're looking for is "ex post facto".
Doesn't fly in the US.

That said, if I'm reading this article correctly, all that happened was that
the SEC issued guidance on the legality (that is, not legal) of various forms
of ICO. That doesn't mean ICOs were legal before, just that the SEC hadn't
issued guidance about it.

If your argument in court is "well nobody told me specifically that my exact
actions were illegal, because your honor, I stabbed that guy while hopping on
one foot on a Tuesday while it was raining", then the court tends to take a
dim view of it. I don't know the case, but if Kik's argument was "well we sold
a security before anyone told us specifically that this thing is actually a
security", it might pan out in a similar fashion.

~~~
nkrisc
Generally, you can say that if you don't know what you're doing is in fact
legal, you should get some legal advice. Of course, this isn't practical in
every situation. Sometimes you just have to take a chance if the stakes are
low. However if what you're doing _looks_ an awful lot like selling
securities, but you don't actually know if it counts or not, I hope you'd get
some advice on that matter. I'm curious if they did.

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xhgdvjky
legal precedence was poorly thought out

