Securities and Exchange Commission v. Kik Interactive, Inc.
United States District Court for the Southern District of New York
492 F. Supp. 3d 169 (2020)
Facts
Kik Interactive, Inc. (Kik) (defendant) launched a digital currency called Kin, which Kik envisioned as a way to buy and sell products. Kik promoted Kin by touting the potential to profit from increased demand for Kin. Kik disclosed its intent to use Kin sale proceeds to, among other things, develop a Kin ecosystem. Kik’s first offering stage was a presale that ran until September 11, 2017, in which Kik sold Kin to 50 investors. At the presale’s conclusion, Kik filed a Form D with the Securities and Exchange Commission (SEC) (plaintiff), claiming that the presale was exempt from registration with the SEC under SEC Regulation D. Kik’s second offering stage was a public sale that Kik called a token distribution event (TDE) that commenced on September 12. The TDE’s terms of use disclaimed any ongoing Kik duties to TDE purchasers. On September 26, Kik distributed Kin to the presale and TDE buyers. On that date, Kin could not yet be used to buy anything. In June 2019, the SEC sued Kik, alleging that Kik violated § 5 of the Securities Act of 1933 by offering or selling unregistered securities because the TDE involved unregistered investment contracts. The SEC also alleged that the presale was not exempt under Regulation D because it was part of an integrated offering with the TDE. The parties cross-moved for summary judgment.
Rule of Law
Issue
Holding and Reasoning (Hellerstein, J.)
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