Federal Judge Determines Kin Token Issuance was an Unregistered Token Offering; Company Agrees to Pay $5M Civil Money Penalty

1:19-cv-05244-AKH; Judge Hellerstein

Kik Interactive Inc. (“Kik”) is a company that made headlines in late 2017 for raising over $100M USD in a token sale. Later, the SEC filed suit against Kik, alleging violations of the securities act, which brought Kik again into the headlines:

The SEC’s complaint charges Kik Interactive Inc. with violating the registration requirements of Section 5 of the Securities Act of 1933.  The SEC seeks a permanent injunction, disgorgement plus interest, and a penalty.  The Commission has previously charged issuers in settled cases alleging violations of these requirements, including Munchee Inc., Gladius Network LLC, Paragon Coin Inc. and CarrierEQ Inc. d/b/a Airfox. 

SEC Press Release

The case was recently brought to an end with the following ruling from Judge Hellerstein of the U.S. District Court for the Southern District of New York. The text of the ruling is set forth below:

FINAL JUDGMENT AS TO DEFENDANT KIK INTERACTIVE INC. IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that:

Defendant is permanently restrained and enjoined from violating Section 5 of the Securities Act [15 U.S.C. § 77e] by, directly or indirectly, in the absence of any applicable exemption:

(a) Unless a registration statement is in effect as to a security, making use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise;

(b) Unless a registration statement is in effect as to a security, carrying or causing to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale; or

(c) Making use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed with the Commission as to such security, or while the registration statement is the subject of a refusal order or stop order or (prior to the effective date of the registration statement) any public proceeding or examination under Section 8 of the Securities Act [15 US.C. § 77h].

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or participation with Defendant or with anyone described in (a). IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that pursuant to Section 2l(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)], with respect to the three trillion Kin tokens issued by Defendant to itself on September 26, 2017 and any new “cryptocurrency,” “digital coin,” “digital token,” or similar digital asset issued or transferred using distributed ledger technology (the “Covered Assets“), Defendant, for a period of three years beginning on the date of entry of this Final Judgment, shall give to the Commission forty-five (45) days’ notice before Defendant participates, directly or indirectly, in an issuance, offer, sale or transfer of any Covered Asset. Nothing in this paragraph requires, or should be construed to require, Defendant to seek the Commission’s approval or consent prior to issuing, offering, selling, or transferring any Covered Asset encompassed by this paragraph, nor should this paragraph be construed to require Defendant to provide the Commission with any information beyond the notice contemplated herein. Defendant shall transmit the notice required by this paragraph to the Commission’s counsel of record in this action.

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or participation with Defendant or with anyone described in (a).

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is liable for a civil penalty in the amount of $5,000,000 pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)]. Defendant shall satisfy this obligation by paying $5,000,000 to the Securities and Exchange Commission within 30 days after entry of this Final Judgment.

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that this Court shall retain jurisdiction of this matter for the purposes of enforcing the terms of this Final Judgment and as further set forth in this Judgment.

(Signed by Judge Alvin K. Hellerstein on 10/21/20) (yv) Modified on 10/21/2020 (yv). (Entered: 10/21/2020)