Readers might recall that in August 2019, we reported that the U.S. Securities and Exchange Commission (SEC) was taking enforcement action against Ontario-based crypto-currency issuer Kik Interactive Inc. (Kik), alleging that it had made an unregistered offering of tokens known as Kin in violation of the Securities Act of 1933 (Securities Act).
On September 30, U.S. District Court for the Southern District of New York (Court) awarded summary judgment in favour of the SEC. Focusing on the economic realities of the transaction, the Court concluded that Kin met the definition of an “investment contract” and, therefore, Kik’s offering of Kin without a registration statement or available registration exemption violated the Securities Act.
Having ruled on the legal issues, the Court left it up to the parties to negotiate a final judgment. On October 21, the Court approved the parties’ settlement, which provides, among other things, that Kik will pay US $5 million to the SEC. For the next three years, Kik also is required to give the SEC 45 days’ advance notice before it participates, directly or indirectly, in any offer, sale, or transfer of the existing Kin tokens or any new, similar digital asset.
As we emphasized last year, this case and the regulators’ continued focus in this area highlight the importance of obtaining legal advice if your business plans contemplate the use of crypto-currency. AUM Law has experience in this area, and we can help you navigate its regulatory challenges.
October 30, 2020