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SEC Charges Kik With Conducting $100M Unregistered ICO

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Re: SEC Charges Kik With Conducting $100M Unregistered ICO

#201

Earlier quoted context omitted.

You're conflating the definition of a "security" under the Securities Act with the definition of an "investment contract" (undefined in the Securities Act and defined by the court in Howey ). An "investment contract" is just one of many things that fall within the definition of "security": > The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of i…

Can you give an example of something that fails the Howey test, but is required to follow the SEC regulations that govern ICOs?

A few things to clarify:

The SEC's position is that tokens are "securities" under the Securities Act and the Securities Act says that all securities must be registered if they're going to be sold to the public. Since the SEC views the tokens as securities (no different from company stock), and securities must be registered to be sold to the public, then (according to the SEC) an ICO of an unregistered token violates securities regulations.

To that end, the SEC hasn't issued "regulations that govern ICOs" they've issued guidance as to how the _existing_ securities regulations apply to tokens and ICOs. The rules haven't changed, the SEC has just attempted to make it clear that the rules do apply even though they haven't necessarily been enforced.

That guidance has come in the form of a statement for ICO issuers[1], a 'Framework for "Investment Contract" Analysis of Digital Assets'[2], and a statement on cryptocurrencies and ICOs[3]. All three include language along the lines of:

> This framework represents Staff views and is not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved its content. This framework, like other Staff guidance, is not binding on the Divisions or the Commission.

As I mentioned in my comment above, the definition of "security" includes a lot of situations. The Howey test only applies to _one_ of those situations: investment contracts. Since "investment contracts" are a type of "security" an investment contract is subject to all of the same rules and regulations as any other security.

Investment contracts are sort of the catch all category in the definition of "security" and why you'll often hear the term come up with respect to cryptocurrency because cryptocurrency is not specifically included in the statutory definition of "security."

Many types of securities fail the Howey test because they aren't "investment contracts" but they are still a "security" and still subject to the same regulations.

For example, employee stock options fail the Howey test because they aren't "an investment of money" and because profits aren't expected "solely from the efforts of a third party." But the Howey test would never be applied to employee stock options because we know "options" and "stock" and "profit-sharing agreement" are all specifically included in the definition of "security." So it doesn't really matter whether employee stock options are an investment contract - they're still subject to the same regulations.

[1] https://www.sec.gov/news/public-statement/statement-framewor...

[2] https://www.sec.gov/files/dlt-framework.pdf

[3] https://www.sec.gov/news/public-statement/statement-clayton-...

Re: SEC Charges Kik With Conducting $100M Unregistered ICO

#202

Earlier quoted context omitted.

Not all ICOs are scams. In some cases people have taken the time to work out a set of incentives that allows a market that previously needed to be operated by a corporate entity to be operated without central control. Such an incentive scheme has intrinsic value equivalent to the coordinating body it replaces. An ICO for such a scheme is not necessarily a scam. Certainly the vast majority of ICOs are scams, but not a…

Name one

The truth is there are A LOT of ICOs which are actually developing or have developed some good solutions to certain problems. Yes there are a lot more scams than good projects, but just dismissing the whole field because of those is plain dumb.

Re: SEC Charges Kik With Conducting $100M Unregistered ICO

#203

Earlier quoted context omitted.

Actually: > 167. [...] Kik declined to sell Kin to investors from certain countries, including Canada, China, Cuba, and North Korea.

Why Canada?

Per the complaint, Kik (a Canadian company) asked the Ontario Securities Commission whether the tokens would be considered a securities offering under Canadian law, and the OSC told them yes, so, Kik banned Canadian investors from participating in the ICO. However, Kik decided not to ask the SEC or any other foreign securities regulator their opinion, and just went ahead with the issuance in every other jurisdiction--except jurisdictions which companies are banned from doing business with, like NK and Cuba.

Re: SEC Charges Kik With Conducting $100M Unregistered ICO

#204

This was inevitable. As I said two years ago[1], just listen to Kik's own words: "When we looked at raising another round [of VC funding], we asked ourselves how do we answer the question about how we will become a profitable business [...] We didn’t have an answer we really believed." ... so instead they decided to raise money from unsophisticated investors in an unregulated market, where nobody asks such inconvenie…

A refreshing perspective compared to the usual HN "it's your fault (& no one else's) that you got defrauded on Kickstarter" position.

Re: SEC Charges Kik With Conducting $100M Unregistered ICO

#206
post #167

Earlier quoted context omitted.

Why should penalties necessarily bankrupt the company? Shouldn't the penalty be proportional to the damage they created by doing things improperly?

There needs to be a punitive aspect as well. Simply taking away their profit doesn't discourage this in the future, as being caught isn't certain. I'm not saying the company should be bankrupted, but it has to hurt them enough that they wouldn't want to risk trying again.

Hurt them enough so that nobody will try the same again, not just kik. But then again, bankrupting them isn't the wisest choice, if they pay enough taxes and their offences isn't too severe, it would be better to have them around employing people and paying taxes and wages vs it doesn't exist at all.

Re: SEC Charges Kik With Conducting $100M Unregistered ICO

#207
post #2

"The complaint further alleges that Kik marketed the Kin tokens as an investment opportunity. Kik allegedly told investors that rising demand would drive up the value of Kin, and that Kik would undertake crucial work to spur that demand, including by incorporating the tokens into its messaging app, creating a new Kin transaction service, and building a system to reward other companies that adopt Kin. At the time Kik…

Honestly, that sounds a lot less scammy than nearly every other ICO out there. Kik is an established company with a social network product used by millions. Given their market position, I think their idea isn't totally farfetched. I could be missing some aspects that indicate it is a total scam, but just from that paragraph alone (which is all I know about the topic), I could see warranted interest from investors. Lo…

Kin definitely isn’t a scam. My company has implemented Kin into our app with over 10 million users and many other apps have as well.

Re: SEC Charges Kik With Conducting $100M Unregistered ICO

#208

It's ridiculous that the SEC can't tell you what is and what is not going to work up front. My god, why should companies have to risk so much in this. Either they provide perfectly clear guidelines or they can screw off. Anything vague is extremely bad for business as it causes undue risk, confusion, lawyers galore. Also - timeframes matter. This event took place quite some time ago, it's totally unfair that the proc…

this is not true, you can get a No Action letter from the SEC upfront.

https://en.wikipedia.org/wiki/No-action_letter

Re: SEC Charges Kik With Conducting $100M Unregistered ICO

#210

Earlier quoted context omitted.

Wow, when you see it laid out like that, crypto looks terrifying. Note, I mean as an investment independent of technological prospects.

Curious why? Investment in new & emerging technologies or markets is always high-risk: I've had years when my Emerging Markets index fund lost half its value, and I know friends that basically lost everything in the dot-com bubble. Hell, the S&P 500 lost 40% of its value in 2008. I would hope that nobody is putting money into crypto that they need to live on. But for money that you aren't going to need for years, the…

>I've had years when my Emerging Markets index fund lost half its value, and I know friends that basically lost everything in the dot-com bubble.

Losing half of your investment's value and the dotcom bubble are nothing compared to crypto losses for some unfortunate investors, unfortunately.

Plenty, if not most of the cryptocurrencies out there... are down >95% from their peaks in late 2017/early 2018.

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