Just a few months after the dismissal of both parties applications for a summary judgement, the Kin case has come to a surprising close after a New York court ratified the proposed settlement between the SEC and Kik Interactive (Kik), last Tuesday. For over two years the instant messaging app vehemently denied its $98 million initial coin offering (ICO) was an unregistered securities offering.
In light of the lawsuit commencing in May 2019, dragging out and nearly bankrupting the messaging app company, this relatively small settlement no doubt comes as a pleasant relief to Kik who from the start, eagerly sought to end the lawsuit before it began.
A surprise ending
After US District Court Judge Alvin Hellerstein sided with the SEC at the end of September, the SEC proposed to the court that Kik only need pay a $5 million fine on top of disgorgement.
The settlement, which has been accepted, requested Kik to wire the $5 million to the SEC and give it 45 days notice before it starts another token sale - nothing further. Considering how hard Kik fought hard to deny the suit, the small civil penalty fine seems somewhat unusual.
Be that as it may, while a price tag of this kind is unexpected when the SEC settles with a crypto company over an ICO, it isn’t unprecedented. Block.one for instance only paid $24 million dollars to the SEC after raising $4 billion dollars for one of its ICO’s.
Loose ends tied up in a neat bow
What makes this settlement more bizarre is the SEC has not asked Kik to register its token as a security, and has not imposed any trading restrictions. Just five days ago, the SEC announced the court found that:
undisputed facts established that Kik’s sales of “Kin” tokens were sales of investment contracts, and therefore of securities.
Yet, according to the court order, Kik won’t be required to seek the commission's approval or consent prior to another token sale nor will it have to provide the SEC with any information beyond a notice. Instead, as far as the Kik is concerned, the settlement has created an “open path” for Kin to get listed on new exchanges it wasn't certain it could previously.
The beginning of a new chapter for Kin
After referring to the lawsuit as a “ a cloud of uncertainty” over Kik's future, Kin foundation's cheerful post settlement announcement encapsulates its returned hopes for the future:
In a nutshell, Kik is going to be OK. Beyond the monetary fine, Kik’s assets are still Kik’s property, including its remaining treasury, its Kin reserves, and all of its intellectual capital
It added:
The future of the Kin Foundation is not adversely affected...Prior to this settlement there had been questions from exchanges if they could list Kin which hindered Kin’s ability to get on top tier exchanges. The judge’s ruling in the case and the terms of the settlement make it clear that the Kin cryptocurrency is not in violation of any securities law and should be free to trade on exchanges.
Considering one of the outcomes of this lawsuit has been a continuous erosion of Kin’s value, this settlement begins a new chapter in the life of Kin and the Kin foundation. Of course, this settlement in the US doesn't preclude similar actions elsewhere, and given their global issuance, a regulator like ASIC could seize the opportunity to follow the SEC's example.