Mixed Response to SEC Case Against Kik

As the dust settles on the SEC’s suit against Kik, the list of supporters for Defend Crypto, a website that the messaging app service created to solicit donations for fighting the SEC in courts, has changed. Per the site’s latest version, Boston-based Circle, a crypto financial services company, is out. The name of San Francisco-based cryptocurrency exchange Coinbase has also been taken off the site’s front page.  Others are still around. This list includes Fight for the Future, a Georgia-based non-profit that counts Union Square Ventures – an investor in Kik, among its funders, and Messari, a New York-based research firm.

Some of the initiative’s supporters have offered enthusiastic encouragement. In his daily newsletter, Messari co-founder Ryan Selkis wrote that his startup was not “backing away from precedent setting legal battles anytime soon when teams fight them for the right reason.” Referring to the SEC’s charge that Kik marketed Kin’s potential price appreciation to investors and in internal communications, Selkis stated that it was a “predictably bad marketing gaffe/gross internal quotes reminiscent of the 2017 ICO insanity.”

San Francisco-based exchange Shapeshift is offering “ideological” support to the initiative. “ShapeShift is supportive of the premise behind DefendCrypto, which is to obtain more clear guidance from the SEC,” Veronica McGregor, legal counsel for the organization, told Decrypt. “We support the concept of pushing the SEC to be more concrete in their guidance on tokens.”

Meanwhile, Kik responded to the SEC’s suit claiming that it was based on “flawed legal theory” and doubled down on its promise to fight the case in court. “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,” Kik General Counsel Eileen Lyon wrote to Decrypt.

Coincenter, a Washington D.C. – based nonprofit for crypto advocacy stated that the SEC’s case against Kik was based on an interpretation of specific facts leading to the offering. The law, and the correct interpretation of the Howey test, is not being questioned in this case. As such, the chance that it might lead to clarity regarding application of the Howey test in the context of digital securities is dim.

“Remember that the question at issue is not whether Kin today is a completely decentralized network with many independent developers, users, and apps—like Bitcoin or Ethereum—or whether the SEC has legal authority over such a network. The question now appears to be much narrower and mostly factual: at the time of the public sale, did Kin have any functionality that wasn’t simply formalism, and was Kin marketed to the public as an investment the profitability of which was clearly dependent on the Kik’s efforts?” the organization wrote on its website.