U.S. securities regulators are suing a Canadian tech company for allegedly conducting an illegal digital token offering that raised US$100 million worldwide.
The U.S. Securities and Exchange Commission (SEC) is suing Kitchener, Ont.-based Kik Interactive Inc, which operates the Kik messaging app, in connection with the company’s digital token offering in 2017, which raised US$55 million from U.S. investors.
The SEC says Kik’s “Kin” tokens amounted to securities, and so the offering should have been registered with regulators.
“The Kin offering involved securities transactions, and Kik was required to comply with the registration requirements of the U.S. securities laws,” the regulator said.
The allegations have not been proven.
The SEC says the company marketed its tokens as an investment opportunity and promised initiatives to drive up demand for the tokens on the secondary market — which highlights their status as securities, according to the regulator.
“Kik told investors they could expect profits from its effort to create a digital ecosystem,” said Robert Cohen, chief of the SEC’s enforcement division’s cyber unit. “Future profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities laws.”
In charging the firm with violating registration requirements, the SEC is seeking a permanent injunction, disgorgement plus interest, and a penalty against the firm.
“By selling US$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,” said Steven Peikin, co-director of the SEC’s division of enforcement.
“Companies do not face a binary choice between innovation and compliance with the federal securities laws,” he added.