Kin vs SEC – a Landmark Crypto Case in the Making

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Kin, the cryptocurrency developed and released by the messaging platform Kik, has done what many ICOs have chosen not to do over the past year or so and has decided to fight a potential case brought against it by the Securities and Exchange Commission. The SEC has taken action against a number of ICOs recently, usually coming out on top, but it seems this time they may have more of a fight on their hands.

SEC Case Impending

Kin was a high profile ICO in 2017 that raised just short of $100 million, but at the time investors from the project’s native Canada were barred from investing after regulators deemed it a to be a security. This line of thought has clearly been expanded to US investors, prompting the SEC into action now that the project is up and running. The SEC has not yet filed formal charges, but a letter sent by the enforcement agency to the platform’s legal representatives in November last year suggests that such a course of action is imminent :

This letter confirms the telephone conversation of November 16, 2018. In that conversation, we advised you that the staff of the Securities and Exchange Commission has made a preliminary determination to recommend that the Commission file an enforcement action against your clients, Kik Interactive Inc. and the Kin Ecosystem Foundation.

Currency, Not a Security

In a written response some three weeks later that has only recently come to light, Kin’s lawyers made their position very clear, disagreeing with the rationale behind the SEC’s treatment of ICOs and cryptocurrency in general. It states that, “Bringing the proposed enforcement action against Kik and the Foundation would amount to doubling down on a deeply flawed regulatory and enforcement approach.”
The crux of Kin’s argument centers around their belief that the token is a currency and cannot therefore be classed as a security, as outlined in the 1934 Securities Exchange Act, which says the definition of a security “shall not include currency”. However, no cryptocurrency has yet been ruled a currency, making this a potentially decisive case in the young technology’s future.

Rewriting the Crypto Rule Book

The ramifications of this case could be huge, whichever way it plays out. If the SEC wins then they will strengthen their grip over ICOs past, present, and future, ensuring that even projects whose sole use case is as a currency will be subject to SEC regulations and many could face retrospective action. If Kin wins, the judgement will set a precedent for which cryptocurrencies can be considered currencies and which can’t. Such a victory will essentially result in official guidelines being laid down that future projects can use to make sure they stay the right side of the law. A second knock-on effect would see some cryptocurrencies classed in the same bracket as fiat currencies.
The SEC is due to vote on whether to pursue legal action against Kin, and if they do you can bet the whole crypto world will be watching.