SEC Targets Kin; Kin Argues It Is Not a Security

Kin, a cryptocurrency that was introduced last year as an offshoot of the chat app Kik, has been quietly facing off against regulators over the past several months. Following a recent exposé from the Wall Street Journal, Kin CEO Ted Livingston has made the issue public on Medium.

In his article, Livingston responds to the SEC’s attempts to crack down on Kin and other emerging cryptocurrencies. Will the project be hit by heavy regulation during upcoming legal battles, or will it manage to get on the SEC’s good side?

Regulators Take Action

Despite the fact that Kin ran a successful ICO, and even though the coin is now being used on various apps, it seems that not all has been well for the project. Livingston says that Kin interacted with the SEC in a “friendly” capacity after its ICO concluded. However, those interactions gradually grew more serious, and Kin soon began to receive subpoenas.

Then, in mid-November, Kin received a Wells notice that will likely authorize SEC commissioners to bring a case against Kin, which could result in penalties and injunctions against the project. Kin’s legal representation responded to the Wells notice in December, and that response has been published alongside the Medium post.

Kin Defends Itself

Kin’s response to the Wells notice is about forty pages long, but its defense largely focuses on two basic arguments: that Kin is a currency (not a security) and that Kin is a functional token (not an investment contract). In other words, Kin is arguably a utility token that is intended to be redeemed for goods and services, and therefore carries little investor risk.

The SEC, however, considers virtually all ICO tokens to be securities without distinction. Beginning with Airfox and Paragon last year, the SEC began to issue penalties mainly on the grounds that those tokens had not registered as securities―meaning that the SEC can now take action against countless ICOs, many of which existed before the SEC took an interest in the area. As Livingston notes:

“This situation is not unique to Kik. There are dozens of projects at a similar point with the SEC. We all believe that this industry needs regulation, but we also believe that this is not the way to get it.”

It should be noted that the SEC has looked favorably on established cryptocurrencies, and Kin has a somewhat higher standing than most of the SEC’s other targets. Kin currently has a market cap of $26.92 million, putting it in the top 150 coins. It is nevertheless a fairly minor cryptocurrency, and it’s not clear whether its reputation will help its case.