"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…
> Who even bought this stuff? My guess is that a lot of this money is dirty. There are also tax reasons, where money needs to be invested or is even expected to be lost.
SEC Charges Kik With Conducting $100M Unregistered ICO
291–300 of 343 posts
Re: SEC Charges Kik With Conducting $100M Unregistered ICO
#292Earlier quoted context omitted.
About this: “The poorest households in the US spend 9% of their income on lottery tickets, showing that you can't legislate people out of misusing their funds.” You’ve explained why it’s urgent that we outlaw lottery tickets. For most of USA history Protestant and Catholic leaders were unified in their opposition to all forms of gambling, and so lottery tickets were unthinkable for most of USA history. And every prog…
People derive enjoyment from lotteries and scratch tickets. I agree that some people exhibit problematic behavior by spending some of their limited funds on these items but that is their right. I'd rather these entertainment sources be captured by the state for the good of all its people than administered privately or clandestinely.
Imagine if anyone could buy $5 worth of stock for the product they're buying at 7-11. Over-time these small purchases would let them amass a sizeable base of assets, and all the while they'd have a stake in parts of the real economy, which would incentivize them to invest time in learning how it works. The educational value alone would be enormous.
Instead we foolishly prohibit people from participating in many of the most lucrative sectors of the economy, which corrals them into low-value dead-end activities like playing the lottos. If you want someone to grow, you don't over-protect them. That applies to raising children, and it applies to governance of the public at large.
Re: SEC Charges Kik With Conducting $100M Unregistered ICO
#293This 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…
The regulations indeed exist because fraud in this vein was prevalent and it made it difficult to compete if you weren't defrauding investors.
Re: SEC Charges Kik With Conducting $100M Unregistered ICO
#294Earlier quoted context omitted.
Do you have any evidence for that? There are other ways of addressing fraud besides violating people's right to freely contract with other consenting adults, like punishing those who commit fraud to deter others from committing the crime, and public education campaigns. The idea that the government has a right to deem a certain class of investors as "unsophisticated", and thus better off deprived of the right to deci…
> The idea that the government has a right to deem a certain class of investors as "unsophisticated", and thus better off deprived of the right to decide for themselves what to invest in, and prohibit an entire class of interactions, on the basis that too many instances of that class are fraudulent, upends basic principles of liberal society. Counterpoint: The government declares which investors are savvy or not ("ac…
You're just rewording what I said.
What you're promoting is based on a principle that is roundly rejected when applied in every other sphere of life.
>>As a reminder, this is one of the few responsibilities the government actually has in any society, even the most libertarian.
Protecting people from their own bad judgement is not a responsibility that the government has in a free (libertarian) society.
That's why we let people read whatever literature they want, no matter how toxic the ideas it promotes, and to eat as much as they want, exercise as little as they want, engage in as much unprotected sex as they want, and drink and smoke as much they want.
When it comes to crime, the government does have a role in protecting people, but the way it traditionally protects them is by intervening when someone reports a crime in progress, or punishing individuals after they've committed a crime, to create a deterrent effect, not by prohibiting people from venturing into dangerous areas of the city, or prohibiting certain types of relationships that are more likely to lead to criminal incidents.
Preemptive restrictions applied to innocent people is not how crime is addressed in a free society.
Re: SEC Charges Kik With Conducting $100M Unregistered ICO
#295Earlier quoted context omitted.
Yea I believe that consensual interactions, whether it's in the civil sphere, with high-risk sexual practices, or the economic sphere, with high-risk investments, should not face any government prohibition.
Likely that the majority here agrees in principal, but those things you're describing are different practices. You might liken an underground ICO to a bug chaser party where some participant doesn't even know what that is. That kind of stuff is a real problem, and there are plenty of scenarios where government prohibition isn't overstepping. In those cases, we're not protecting you from yourself, but rather protectin…
The vast majority of people applauding restrictions on securities offerings would vote against any party that advocated similar restrictions on high-risk sexual activity. That shows that most people are just conforming to the popular viewpoint, and not independently and critically thinking about the issue.
That is dangerous, because these issues are too complex, and too important, to decide on nothing more than what position is the popular fad. They have very significant consequences for huge numbers of people. We as a society need every single voter to fully understand the principle behind every law, and be able to justify it, because the consequence for violating the laws is that a person has their property seized, or their freedom taken away.
Also, I think your analogy is inappropriate. People investing in crypto tokens is not going to do damage anywhere close to that done by "bug chaser parties". It's just money, if that (much of it is in the form of other crypto-tokens, so we're not even talking about fiat currency being risked).
Even if you accept that people bankrupting themselves is a terrible outcome for society, the fact remains that people have plenty of other ways to blow their money. I can't see how these investments not being prohibited would make the problem any worse.
But what a lack of prohibitions and a free market in soliciting and making investments would do is provide people with valuable exposure to the real investment world, and allow them to get a better understanding of how marketing hype, and speculative bubbles work, and how to identify real value. It would also allow people in much lower socio-economic groups to raise capital.
Finally, no one is saying that victimizing behaviour, like fraud, should be legal. The question is, how do you address predatory behaviour. The answer in the West has traditionally been to punish those convicted of committing it. Cookie-cutter rules that subordinate every participant in an industry to a centralized gatekeeper, are disproportionate to the threat of fraud and inconsistent with the principles of a free society, like the presumption of innocence and the freedom of association and contract.
They overly regiment the market, which inhibits innovation, and create barriers to entry to various sectors of the economy that exacerbate income inequality.
Re: SEC Charges Kik With Conducting $100M Unregistered ICO
#296Earlier quoted context omitted.
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…
Can you sketch what you mean by there being a good chance some type of cryptocurrency will replace the financial system of today? Is the idea something along the lines of the double forces of greed and fear causing the perfect bubble? The one that doesn't pop because it eats its own downside on the way? Why won't governments just shut down the on-ramp exchanges if the space ever looks like more than a way to gamble o…
My reasoning is this:
Fundamentally, the financial industry is about time, risk, and trust. The reason the industry exists is to shift productive capacity from individuals that are able to bear it now, to enterprises that may or may not pay off later, in a way that everybody who contributed to the success of an enterprise gets paid off later (when they need the funds) and gets to do it again. Currency is an information-carrying device that both lets you shift production from the consumer to the person best able to provide the service (medium of exchange) and records that a person provided valuable services at some point in the past so that they can claim services in the future (store of value). Stocks and bonds are both different ways of transferring money that people don't need now to people who can do useful things with it now, in a way that the investor can receive a payoff later. The banking system does the same, but with institutionalized, standardized practices. The insurance industry spreads risk from people who cannot bear it now across people who can; the futures & derivatives markets transfer that risk from firms who cannot bear it to firms who can.
When I look at the ICO boom of 2017, I saw the beginning of a functioning financial system. All the basic elements were in place - the ability to transfer value and claims of future value between participants, the ability for people with an excess of credit (assets) now to fund the development of projects that may pay off later, and the trust that if those projects were successful, they would benefit. It's all in a very rough form - the network got clogged such that it took ridiculous times for transaction confirmations, most of these projects continued to fail and end up worthless (I actually have hard data on this - roughly 90% of ICOs are either scams, failed, infeasible, or otherwise abandoned, while 10% are still going concerns 2 years later), there've been a bunch of hacks of exchanges and smart contracts, market manipulation is rampant, and cryptocurrency prices look like a roller coaster. Basically, we're making all the mistakes of 19th-century finance again: the crypto market looks a lot like the stock market did in the 1840s.
But we're doing it without needing any people involved in transactions. That's hugely powerful, in a world that software is eating. Finance is a $13T industry accounting for ~20% of world GDP and employing millions of incredibly high-paid people. In the sense of crypto being a cheap software-only competitor for extremely high-paid people, it's quite attractive.
And all of the problems that happened in 2017 are fixable. There are already lots of people working on the cryptocurrency scalability problem, between Bitcoin Lightning, Ethereum Casper, and new consensus algorithms like DPoS and SCP. People are working on the energy consumed by PoW, too - almost all new coins are proof-of-stake. Distributed exchanges like the 0x protocol remove the need to trust third-parties with your funds; you can keep them all in your own wallet. Continued bugfixes to Solidity shore up smart contract security. Stablecoins like MakerDAO and USDC remove the volatility of pricing in terms of crypto. Oracles provide a way to get more "facts" onto the blockchain so that smart contracts can rely on a disinterested third-party to make decisions on data. Each bubble distributes more crypto out of the hands of early-adopter whales (other than the Satoshi-coins, these account for less than 15% of total Bitcoin supply) and into the hands of ordinary people.
I think that governments if they acted now could shut down the fiat on-ramps to crypto, but I don't think they will. Too many people that use it for legitimate investment purposes, who will be very upset if they do. Government always tends to react a little too late to the social changes presented by new technology - we're only now seeing a backlash to the Internet, 30 years later, and at this point it's a little late to shut off the net even if certain governments are trying. Besides, if a technology makes the group of people who adopt it more efficient than the people who don't, the former will outcompete the latter. At some point, once people are directly selling goods for crypto and getting paid in it, it becomes too big to fail. I think that's a few years off (I expect crypto adoption to be slower than WWW adoption, because finance is more fundamental to society than communication is), but ultimately I think the ability to fund & partake in the benefits of new ventures without needing permission from Wall Street or Sand Hill Road will outweigh all the downsides of crypto.
Re: SEC Charges Kik With Conducting $100M Unregistered ICO
#297Whether or not Kin is a scam is an entirely different matter from whether or not Kin is a security. The SEC has jurisdiction over securities, but not over scams generally. There is a substantial debate as to whether or not Kin is a security. At the very least, a decent argument has been made that it is not. Clearly Kik and their lawyers think they can win. Personally, I largely agree with the logic laid out by Kik in their Wells Response to the SEC[1]. HN user elliekelly gave other great examples of of the difficulty in applying securities laws in cases like this[2].
We have to be very careful ceding ground to the SEC on what constitutes a security. This is absolutely worth fighting if you care about innovation in the United States. Many of the donors to Kik's Defend Crypto campaign couldn't care less about Kin. That is not the point. However, they do care immensely about the ramifications this case could have for businesses.
Businesses should be experimenting with new ways to finance companies. Perhaps that is through the sale of tokenized products or virtual currencies. Maybe they will provide great alternatives to venture capital over the long term. The label of "security" is an onerous one that creates massive obstacles to that innovation, especially for small companies. If the SEC succeeds in labeling Kin a security, what could have been the beginning of an innovative step towards new business models for fledgling startups is now forever regulated away into obscurity in the US. Meanwhile, businesses in other countries get to keep experimenting. The lackluster guidance and unpredictable enforcement has already led to companies taking their business elsewhere. It's a shame really.
If there is even a sliver of a doubt as to whether or not Kin constitutes a security, we should not be so quick to cede ground to the SEC. If we let the SEC go unchallenged, they will expand their reach, becoming more entrenched and widening the scope of what constitutes a security. Gaining ground back becomes harder over time, especially if the SEC wins court cases.
If Kin truly is a scam, we have a multitude of ways to prosecute them without involving the notion of securities. If nothing else, we always have regular contract or tort law if there were any contractual misrepresentations or intent to defraud. We don't need the label of "security" or action from the SEC for these kinds of claims, and this approach would be perfectly adequate. There are a number of government agencies that could bring these sorts of cases and fight for the public. Trying to prove it is a security at the same time is simply regulatory overreach.
Bottom line, maybe Kin is a scam (I don't think so), maybe someone should do something about it, but let's be careful about expanding the scope of what constitutes a security. There are plenty of ways to prosecute Kik without ceding that ground.
Side point: if the SEC succeeds in labeling Kin a security this creates all sorts of logical incongruities with past no-action letters or lack of enforcement in other areas. For example, if Kin is a security, why were the San Francisco Giants given a no-action letter for pre-sales of stadium seats "all of which were initially sold to fans prior to the Park’s opening day" which could be resold through "a service that would facilitate the resale of Charter and Club seat licenses"?[3] Sure, the Giants made a buyer represent that they were "not acquiring the [seat] as an investment and has no expectation of profit", but do we really think that stopped people from buying with the intent to profit? ICOs put the same representations in some of their pre-sale agreements, and we all know that did not stop people. What amount of intent to consume vs resale is appropriate? Broadway theater shows do the same sort of pre-sales of seat licenses, and we all know how much people profit from the resale of successful shows. This checks all of the boxes of the Howie Test (paid money, expectation of profit, dependency on managerial efforts). How come the SEC does not bring action there? I don't see fair and even enforcement of the law, which really brings the efficacy of it all into question.
[1] Kin Wells Response, https://www.kin.org/wells_response.pdf
[2] HN comment by elliekelly, https://news.ycombinator.com/item?id=20098363
[3] https://www.sec.gov/divisions/corpfin/cf-noaction/sfba022406...
Re: SEC Charges Kik With Conducting $100M Unregistered ICO
#298According to the article, "The Securities and Exchange Commission today sued Kik Interactive Inc", without clarifying in what jurisdiction they are suing them. It is about "the sale of one trillion digital tokens". It is therefore about the exchange of KIN tokens against other tokens such as BTC, ETH, USDT, or similar.
The KIN token is traded on 10+ different non-jurisdictional exchange platforms: https://coinmarketcap.com/currencies/kin/#markets
The American SEC cannot reasonably claim jurisdiction over the non-jurisdictional Ethereum platform, nor over any non-jurisdictional exchange platforms, because in that case, every country could do that too. If every country can do that, then no country can do that.
Why?
Well, in that case, KIK could trivially seek protection in North Korea or Russia, and prevent US enforcement by shielding under their nuclear umbrella.
Concerning KIK's marketing communications, it is not clear who exactly can regulate such messages: the country of message origination or the country of message destination.
We cannot allow US government departments to grab control over non-jurisdictional issues. That is absolutely not in the interest of international users. Therefore, it is necessary to encourage geopolitical adversaries of the USA to impede, thwart, and undermine any such attempt.
Re: SEC Charges Kik With Conducting $100M Unregistered ICO
#299For those who didn't know (like me): The Howey Test determines that a transaction represents an investment contract if "a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party," https://www.investopedia.com/terms/h/howey-test.asp
The major issue with Howey has always been that it doesn't account for situations where investors are investing for some benefit other than profit from appreciation or dividends. Howey is particularly difficult to apply when that "other benefit" is personal consumption or when investors are investing for a combination of profit and "other benefit" as is the case with Kin. For example, what if Mr. Howey had purchased…