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U.S. SEC Rejects Void for Vagueness Defense of Kik

Saad Ullah

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The United States Security Exchange Commission (SEC) has rejected the claim of Kik that the commission’s securities law is void for vagueness when it comes to the messaging app’s 2017 ICO.

Untenable Claim

Kik has been embroiled in a legal battle with SEC on the status of its initial coin offering, which the messaging platform has said is legal under the rules of the commission. Kik had claimed that the regulation is vague and has no clarification of the term “investment contract” and as such, it cannot be applied to the token sales.

On Friday, the SEC replied back, with anger and ridicule dripping from its statement,

“This defense asserts that, notwithstanding 70-plus years of well-settled jurisprudence, the term ‘investment contract’ in the securities laws is void for vagueness as applied to Kik’s investment scheme. This claim is untenable and should be dismissed.”

The SEC seems not to back off from its claim that the USD 100 million KIN coin offering by Kik was illegal. The Canadian based offering had seen more than half of the investments come from the United States alone. Steven Peikin, the Co Director of SEC, had said at the time of the lawsuit,

“By selling $100 million in securities without registering the offers or sales, we allege that Kik deprived investors of information to which they were legally entitled, and prevented investors from making informed investment decisions,”

Kik had invested all of its earning in the legal battle, coming to the brink of shutting down. It laid of staff and kept only the ones needed to continue on fighting the lawsuit (from a 100+ to approximately 19). Luckily, for Kik users, the messaging app has been bought by MediaLab, which will continue running the platform.

Investment Contract

The quarrel lies in the fact that there is no specific definition of what is an investment contract. The Securities and Exchange Commission does not have any classification of it, rather, the scope comes from a 1946 Supreme Court ruling in the SEC VS Howey case, what has come to be known as the Howey Test. The test has set a precedence on what constitutes as an investment contract.

Essentially, the test says that if any financial transaction in a business by another party with expectations of a profit from efforts made by others is an investment contract by default. Any investment contract is a form of security and therefore, comes under the jurisdiction of SEC.

Kik is fighting on the grounds that the Howey test is not clear enough to be applied to its token sales. The test is not designed to accommodate tokens of crypto in it. Kik is using the Void for Vagueness clause in its case, where the doctrine states that laws should not be vague so that they are not decipherable by people of ordinary intelligence.

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