26 Sep 2019
The Securities and Exchange Commission (SEC) has stepped up its efforts to fight against illegal token offerings in the United States. Many crypto exchanges and crypto related businesses have found themselves in legal battles with the regulator after running initial coin offerings (ICOs).
One of the most recent cases between the SEC and a crypto related firm has to do with Kik Interactive, the firm that created the Kik Messenger app and a cryptocurrency named Kin. Kik Interactive has announced the shutting down of its Messenger amid a legal battle with the SEC regarding the company's ICO activity.
The SEC claims that the firm’s ICO violated securities laws in the US. Kik was ordered to register the tokens as securities or face legal action, and the firm chose to go to court. Ted Johnson, founder and CEO of Kik, maintains that their ICO did not violate any securities laws and maintains that the SEC has misrepresented the facts of the matter in a bid to paint Kik in a negative light.
The difference between securities and none-securities has been a matter of contention in the US. The SEC characterizes most tokens offered through ICOs as securities in a bid to prevent scams that can be run through such token offerings. Many crypto related firms that offer ICOs promise investors high profits and benefits. They make these offers and promises, knowing that they can not deliver on these promises. These cons are common, but they are beginning to affect legitimate businesses that are trying to get investors on board.
Bitconnect ran one of the most controversial ICOs. The firm made several promises to its investors, including massive profits in a short space of time, and even high-end cars as part of what they would receive after the company began trading. It turned out that all this was a lie and the ICO was the Ponzi scheme of sorts. Investors lost over $1.5 billion to Bitconnect and even after the scam has been exposed, several other people that their money to the company. The firm released another coin through a project named Bitconnect X and ran another ICO.
There have been many other similar Ponzi schemes such as the one run by Bitconnect. Josh Garza created Paycoin (XPY) and used it to run a crypto scam. He promised investors a $20 floor on his coin, and he promised his clients high profits from mining dividends. Over $9 million was lost during this scam. Two siblings created a shitcoin named onecoin (ONE), and investors lost $4 billion. The coin was dubbed the Bitcoin killer when it was released, but it turned out to be a scam.
There have been several crypto related scams, and these have put the SEC on a warpath against ICOs. The regulator seems to be intent on fighting against all ICOs, and this raises questions about whether legitimate projects are being wrongly targeted. Given that government agencies are known for employing underhand tactics to get a result, it would not be surprising that the SEC is doing the same.
The regulator may be manipulating the evidence in the Kik matter to suit their agenda. On the other hand, Kik’s ICO may have violated securities laws. With the shutting down of Kik Messenger, the use case for the Kin token becomes even more questionable. Whatever the result from the matter, it will likely leave more questions than answers about ICOs in the US.
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