Both parties must present a joint agreement between now and October 20th. The judge argues that his decision is based on the Howey test.

In its express trial against the Initial Coin Offering (ICO) of the instant messaging service Kik, the US Securities and Exchange Commission (SEC) scored a victory. A judge stated that Kik violated the Securities Law by trading the KIN token without his approval, thereby agreeing with the regulatory entity.

Alvin Hellerstein, a judge for the Southern District of New York, explained that courts rely on all three arguments in the Howey Test. It allows them to determine whether or not a sale of this type is trading of securities.

The Howey Test is a way of determining whether the provision of a service gives rise to an investment contract. It has three guidelines: a sale of securities occurs if there is an investment of money if there is a common company and if there are expectations of making profits that derive only from the efforts of others.

“Kik admits that its issuance of KIN involved an investment of money whereby participants bought or acquired Ether (ETH) and traded Ether for KIN,” the judge said. For that reason, “the parties agree that the trading of the token meets the first element of the Howey test.” The parties are still discussing whether it meets the other two elements of the Howey test, but the judge argues that it does.

The SEC and Kik agreed to this judicial process, so it is not a traditional trial but rather an express trial. The ruling comes six months after the commission and the Canadian company Kik Interactive agreed to decide the case as soon as possible.

The ICO That Annoyed the Securities Commission

Kik conducted the ICO for the KIN token in two phases in 2017. The first part traded, between June and September, USD 50 million worth of tokens on a private pre-sale to 50 investors. The second part occurred that same September with a public offering that raised USD 49.2 million.

The problem arose when Kik announced KIN since the commission had not yet established its guidelines to regulate this type of operation. Kik Interactive defended itself by saying that the token is “truly a currency,” since it serves as a form of payment for more than 30 mobile device applications.

Judge Hellerstein agreed with the SEC, but the express trial does not end there. Both parties must reach an agreement and present a joint sentence between now and October 20th. Kik will need to mention whether it will return the funds to investors, pay a fine, or both.

The messaging service Kik Interactive, also known as Kik Messenger, announced the closure of operations in September 2019. At the time, there was information that it would continue in the business of messaging and would develop its token through KIN. It kept both operations in parallel for a few weeks.

By Alexander Salazar


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