One of the reasons for the 2017 bull run that caused Bitcoin to hit near $20K is the fact that there was a number of ICOs that have succeeded in luring investors. This has been called ICO mania. And for some, it was a step backward for the crypto market.
Unfortunately, many of these ICOs were scams and tokens that actually don’t have a practical use in daily lives. The majority were even losing its value. It is also the reason why the US Securities and Exchange Commission along with other regulators took a more active role in going after companies that raised funds using ICOs.
In fact, celebrities who promoted ICOs were also targeted by the SEC. These celebrities were paid by the companies to promote the token but it was never disclosed during their posts on social media. Among celebrities included are Floyd Mayweather and DJ Khaled. However, both were dismissed.
Now, the SEC going after companies isn’t exactly over. The SEC sued Kik Interactive because of the $100 million token sale that it launched two years ago. The SEC claims that Kik conducting $100 million offering of digital tokens to US investors without being registered is illegal under US law.
Raising Funds Via ICO
There were a number of companies that were able to raise funds in 2017 using blockchain technology as an excuse. Kodak even attempted to also raise funds this way. For Kik, it has already been losing money from its online messaging application. It was even predicted that it would run out of money by 2017. And that is also around the same time when the company decided to sell its digital token “Kin”.
The company was able to sell 1 trillion digital tokens and was able to raise $100 million. And since Kik marketed Kin tokens as an asset that can increase in value is something that alarmed the SEC. Kik was supposed to build something like a Kin transaction service that awards users who used Kin. And also, this would’ve incorporated Kin tokens in the messaging app. Unfortunately, none of these things were present during the time of offering according to the SEC.
Steve Peikin who is the co-director of SEC’s Division of Enforcement, “By selling $100 million in securities without registering the offers or sales, we allege that Kik deprived investors of information to which they were legally entitled, and prevented investors from making informed investment decisions”. He also added that “Companies do not face a binary choice between innovation and compliance with the federal securities laws”.
But of course, there is an argument that all cryptocurrencies are exempt from securities. Well, of course, this will still depend on whether or not the court is going to accept that Kin fits the definition of a legal tender.
Bitcoin and Ethereum have been considered by the agency, not as securities. As for the other cryptocurrencies in the market, these cryptocurrencies are still in a grey area. However, if you are going to ask someone like Robert A Cohen who is the chief of the Enforcement Division’s Cyber Unit, “Kik told investors that they could expect profits from its effort to create a digital ecosystem”. Could this be enough to penalize Kik? Could the SEC be going after more ICOs?