In an effort to increase its regulation of coin offerings and cryptocurrency generally, this month the Securities and Exchange Commission (SEC) has charged Kik Interactive Inc. with conducting an illegal, unregistered initial coin offering (ICO). As a part of an unregistered ICO in 2017, facing continued losses and dire financial straits, Kik sold a trillion “Kin” tokens, raising approximately $100 million in the process.
In its complaint, the SEC alleges that Kik marketed the Kin tokens as an investment opportunity, told investors that they could expect profits from its efforts to create a digital ecosystem, and deprived investors of information to which they were legally entitled and prevented investors from making informed investment decisions.
Robert Cohen, Chief of the Enforcement Division’s Cyber Unit made the SEC’s position clear, stating that “future profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities laws.”
This complaint signals the SEC’s continued willingness to treat tokens, and cryptocurrency generally, as securities. Token offerors will have to ensure they are complying with federal securities laws or run the risk of SEC enforcement actions.