Canadian chat app Kik has filed an answer to a lawsuit by the Securities and Exchange Commission (SEC) claiming that the company’s $100 million digital coin offering was not legal. Kik said the SEC twisted the facts of the case, according to a report by the Financial Times.
The lawsuit was announced in June, when the SEC accused Kik of violating securities law for not registering its 2017 digital token. The case could end up being a benchmark for how digital offerings will be defined moving forward.
According to the SEC, Kik felt it might run out of money when it was facing revenues of $1.5 million versus expenses of $32.3 million, from the middle of 2016 to the middle of 2017. The company came up with a strategy to combat this by introducing a digital coin called “Kin,” which was presented to investors as a potential investment opportunity, the SEC alleged.
Kik said that Kin wasn’t illegal because of the way it worked. Users could earn the coin by watching ads or doing surveys, and could then use the coin on the platform. By using this method, Kik said, the coin can’t be classified as a security and doesn’t have to follow the same regulations.
Kik also said the SEC made “a consistent effort to twist the facts” by using quotes out of their original context and also “misrepresenting the documents and testimony that the commission gathered in its investigation.”
Part of the back and forth between the two parties is the SEC’s allegation that Kin needed to be a registered offering, but Kik said a consultant told them that because Kin was a “community currency,” that would not be required.
“You’re just selling units of property that you created that are used for a particular purpose in your app,” the consultant allegedly said, according to Kik.
Kik also claimed that the SEC took out parts of a quote where Chief Executive Ted Livingston explicitly said Kin was a community currency and that the company couldn’t guarantee its value.