Messaging app Kik Interactive has filed a response to the SEC’s complaint against it last month. In its complaint, the federal agency had alleged Kik’s offering of its token called Kin was a “hail mary” unregistered security offering intended to shore up dwindling revenues and a decline in user numbers on its app. The complaint quoted from internal emails and confidential conversations and painted a damning picture of a startup in trouble and desperate for fresh cash infusion.  

Kik has come back fighting, however. Its response is strongly-worded and aggressive and accuses the SEC of “a consistent effort to twist the facts by removing quotes from their context and misrepresenting documents and testimony.” The startup further states that the SEC’s complaint “badly mischaracterizes” facts and circumstances quoted by the federal agency within the context of Kin’s sale in 2017.

Examples of Mischaracterization

Kik provides three examples of SEC’s mischaracterization.

In the first instance, the app claims that the SEC’s assertion that it disregarded a consultant’s advice regarding its offering is false. According to the SEC, the said consultant is supposed to have told Kik’s management in an email that “unregistered security offerings are not legal in the US.”

But Kik claims that the full quote advised them that there was a good basis to argue that their token was a community currency and not a security. “You are just selling units of property that you created that are used for a particular purpose in the app,” the consultant is supposed to have written.  

The other two examples further relate to videos where Kik’s founder Ted Livingston is supposed to have insinuated that his team was working to increase Kin’s value. But Kik claims that the SEC selectively used words from the videos and did not include full quotations. Taken in full, the quotations disprove SEC’s theory, the startup claims.

On the all-important quote about Kin being referred to as a “hail mary” measure by a board member, Kik quotes another member. “The more I think about it, I think this is a great idea. People call it a hail Mary but to me that is a longshot and I really do not think it is a long shot,” the member is supposed to have written.

Kik has also pointed out other inconsistencies in the SEC’s story about its sale. For example, it conducted two offerings – one private and another public, instead of just one public offering as claimed by the SEC.

Similarly, it disputes that the SEC’s assertion that it sold “securities” in 2017, even going to the extent of parsing the agency’s summary of Howey Test, a 1933 test used to determine the status of a token.

Will the Case Produce Regulatory Clarity?  

Kik’s tussle with the SEC is the most high-profile case involving crypto regulations. It has become a cause celebre for some who claim that existing regulations allow SEC to select winners from the cryptocurrency ecosystem. Kik also created a fund to finance its case against the SEC. But very few crypto companies signed up for it.

Observers hoping for regulatory clarity (or a new Howey test for cryptocurrencies) may be in for a disappointment. Kik’s response is in the same vein as the SEC’s complaint; the argument here is not about unfair regulation pertaining to cryptocurrencies but about facts specific to this offering. The narrative has devolved to a he said/she said conversation about quotes and characterization, with each side disputing the other’s story.

While both parties have adopted an aggressive posture and produced strong evidence, the chances that the case will produce clarity in regulation seem remote. Its facts make for great headlines but they cannot be used to make the case for crypto regulation.

(Paradoxically enough, Kik mentions that the Commission generated a “decent news cycle” from the filing. The same could be said about its filing.)

But Kik CEO Livingston told CoinDesk that he is hopeful the case will result in guidance about cryptocurrencies.