SEC Charges Kik With Conducting $100M Unregistered ICO(sec.gov)
sec.gov
SEC Charges Kik With Conducting $100M Unregistered ICO
https://www.sec.gov/news/press-release/2019-87
342 comments
What's unbelievable is the lack of sophistication on Kik's part. Any lawyer working for them should've responded immediately to this statement (and their general nonchalance about the issue) and advised to shut the ICO down immediately.
You literally can't make this any easier for the SEC. There's not much of a defense when you repeatedly admit that you're attempting to raise money by issuing something you market as an investment opportunity.
You literally can't make this any easier for the SEC. There's not much of a defense when you repeatedly admit that you're attempting to raise money by issuing something you market as an investment opportunity.
The regulations indeed exist because fraud in this vein was prevalent and it made it difficult to compete if you weren't defrauding investors.
Do you have any evidence for that?
There are other ways of addressing fraud besides violating people's right to freely contract with other consenting adults, like punishing those who commit fraud to deter others from committing the crime, and public education campaigns.
The idea that the government has a right to deem a certain class of investors as "unsophisticated", and thus better off deprived of the right to decide for themselves what to invest in, and prohibit an entire class of interactions, on the basis that too many instances of that class are fraudulent, upends basic principles of liberal society.
The poorest households in the US spend 9% of their income on lottery tickets, showing that you can't legislate people out of misusing their funds. If anything, the attempt to do so deprives them of better investment opportunities, and better opportunities to learn how the investment world works.
And this isn't free market idealism. The crypto/token investment market has become vastly more sophisticated over the last 4 years. Token sales that would have raised millions 4 years get nothing today. People need to have a bit more faith in other people, and in freedom.
There are other ways of addressing fraud besides violating people's right to freely contract with other consenting adults, like punishing those who commit fraud to deter others from committing the crime, and public education campaigns.
The idea that the government has a right to deem a certain class of investors as "unsophisticated", and thus better off deprived of the right to decide for themselves what to invest in, and prohibit an entire class of interactions, on the basis that too many instances of that class are fraudulent, upends basic principles of liberal society.
The poorest households in the US spend 9% of their income on lottery tickets, showing that you can't legislate people out of misusing their funds. If anything, the attempt to do so deprives them of better investment opportunities, and better opportunities to learn how the investment world works.
And this isn't free market idealism. The crypto/token investment market has become vastly more sophisticated over the last 4 years. Token sales that would have raised millions 4 years get nothing today. People need to have a bit more faith in other people, and in freedom.
You’ve got this backwards. Anyone can sell securities to any investor if the company they’re selling shares in can commit to providing regular audited financial disclosures showing they’re not frauds. It’s on the product being brought to market to show it’s fit for sale, not for the investor to show they’re “sophisticated.” If they show they’re sophisticated they can elect to waive the reporting requirements. You could do this for your personal C Corp, it’s just a lot of overhead you may deem not a good use of capital.
Kik is choosing not to become a “public” company in that they don’t want to file disclosures. They’re trying to circumvent the rules that show they’re operating above board.
Kik is choosing not to become a “public” company in that they don’t want to file disclosures. They’re trying to circumvent the rules that show they’re operating above board.
>Anyone can sell securities to any investor
can being the operative word. There is a very significant market for investments where "sophisticated" – er – Accredited Investors get access to purchase securities that are not available to the public.
Frustration from people who want to but cannot access this market is real and arguably valid, a balancing act between preventing fraud and granting access which is tipped a bit too far towards not necessarily preventing fraud but restricting access for the benefit of a few. (on the other hand before you go public there is a benefit to only having investors that really know what they are doing, the rabble of small time less knowledgable investors can be a business risk before your company is ready for the public)
What I am saying is that the people spouting nonsense come from a place where there is truth, but so many people know so little about it that good discussions are hard to come by.
can being the operative word. There is a very significant market for investments where "sophisticated" – er – Accredited Investors get access to purchase securities that are not available to the public.
Frustration from people who want to but cannot access this market is real and arguably valid, a balancing act between preventing fraud and granting access which is tipped a bit too far towards not necessarily preventing fraud but restricting access for the benefit of a few. (on the other hand before you go public there is a benefit to only having investors that really know what they are doing, the rabble of small time less knowledgable investors can be a business risk before your company is ready for the public)
What I am saying is that the people spouting nonsense come from a place where there is truth, but so many people know so little about it that good discussions are hard to come by.
I do agree with you, though access to private market equity isn’t a sure win by any means. A startup fails to raise their next round of funding 90% of the time every time. The riches are survivorship bias largely. This also doesn’t solve for deal flow which you have to figure out yourself anyways, and to get the equity “clearly” headed for the top you better be able to demonstrate value. You can already access “private market” equity via crowdfunding terms in the JOBS act but those exchanges exhibit heckin adverse selection issues.
The reality is if you’re a high profile founder with a great idea and traction you can get money from mostly everyone while maintaining a nice clean cap table. If you aren’t, you then raise from “suckers” (see the ICO market).
It's as though some of the libertarian leaning commenters think these rules were brought in because the government was tired of seeing so many poor people become wealthy. The reality is the government was tired of seeing so many poor people get rekked and thrown into the welfare system, what little of it there is here.
tl;dr: getting rich isn’t easy and deregulation is likely to cause more harm than good.
The reality is if you’re a high profile founder with a great idea and traction you can get money from mostly everyone while maintaining a nice clean cap table. If you aren’t, you then raise from “suckers” (see the ICO market).
It's as though some of the libertarian leaning commenters think these rules were brought in because the government was tired of seeing so many poor people become wealthy. The reality is the government was tired of seeing so many poor people get rekked and thrown into the welfare system, what little of it there is here.
tl;dr: getting rich isn’t easy and deregulation is likely to cause more harm than good.
Except the reporting requirement are cost prohibitive for a company that is seeking seed funding to file an s-1 or a reg—a even.
So us, poor unsophisticated plebs, can’t invest in anything until post IPO. Which seems to be way after the majority of the gains have been captured.
Ironically people are trying to build fully automatic DAOs, such that the use of funds is fully transparent. Effectively baking in the reporting into the organization.
So us, poor unsophisticated plebs, can’t invest in anything until post IPO. Which seems to be way after the majority of the gains have been captured.
Ironically people are trying to build fully automatic DAOs, such that the use of funds is fully transparent. Effectively baking in the reporting into the organization.
> seems to be way after the majority of the gains have been captured.
And also after the point where most of the failed companies have collapsed. Don't let survivorship bias run your investment decisions.
And also after the point where most of the failed companies have collapsed. Don't let survivorship bias run your investment decisions.
It's more than that. They received money from "investors" without giving away any equity.
Good point, I didn’t address that.
About this:
“The poorest households in the US spend 9% of their income on lottery tickets, showing that you can't legislate people out of misusing their funds.”
You’ve explained why it’s urgent that we outlaw lottery tickets. For most of USA history Protestant and Catholic leaders were unified in their opposition to all forms of gambling, and so lottery tickets were unthinkable for most of USA history. And every progressive activist that I know personally would like to see an end to lottery tickets and other forms of de facto regressive taxation. Lottery tickets, like other forms of gambling, tend to undermine habits of thrift and sobriety.
I agree with your implied analogy — ICOs are like lottery tickets. That’s why they should be banned.
“The poorest households in the US spend 9% of their income on lottery tickets, showing that you can't legislate people out of misusing their funds.”
You’ve explained why it’s urgent that we outlaw lottery tickets. For most of USA history Protestant and Catholic leaders were unified in their opposition to all forms of gambling, and so lottery tickets were unthinkable for most of USA history. And every progressive activist that I know personally would like to see an end to lottery tickets and other forms of de facto regressive taxation. Lottery tickets, like other forms of gambling, tend to undermine habits of thrift and sobriety.
I agree with your implied analogy — ICOs are like lottery tickets. That’s why they should be banned.
>ICOs are like lottery tickets
Not all of them, though maybe nearly all of them.
There is nothing at all wrong with using a crypto-system to distribute ownership of your business. The SEC is actively working to make this a reality. It is just a different market to do the same thing.
There is however so very much wrong with doing this outside regulation. Black market shares of your company are bad. Making up the nth new coin and selling its nonsense to the unwise in pump and dump schemes is wrong. In order to do so legally you have to be extraordinarily careful to completely divorce yourself from the US financial system and doing business on US soil.
Banks themselves are starting to use crypto-coins to operate. They're just a tool, when used in the right way they aren't an exciting anarchist revolution usurping The Man, they're just a different sort of database/API. JPMorgan is setting something up for business-to-business transactions because they think it could be a better replacement for the current complex frameworks they have for keeping track of money.
Most ICOs are like bad lottery tickets, but it's not the technology underlying it at fault.
Not all of them, though maybe nearly all of them.
There is nothing at all wrong with using a crypto-system to distribute ownership of your business. The SEC is actively working to make this a reality. It is just a different market to do the same thing.
There is however so very much wrong with doing this outside regulation. Black market shares of your company are bad. Making up the nth new coin and selling its nonsense to the unwise in pump and dump schemes is wrong. In order to do so legally you have to be extraordinarily careful to completely divorce yourself from the US financial system and doing business on US soil.
Banks themselves are starting to use crypto-coins to operate. They're just a tool, when used in the right way they aren't an exciting anarchist revolution usurping The Man, they're just a different sort of database/API. JPMorgan is setting something up for business-to-business transactions because they think it could be a better replacement for the current complex frameworks they have for keeping track of money.
Most ICOs are like bad lottery tickets, but it's not the technology underlying it at fault.
> ICOs are like lottery tickets
Actually in most countries lotteries are pretty heavily regulated to ensure that they are indeed redistributing a share of ticket sales as winnings and are also fairly selecting winners. ICOs are like unregulated lotteries that might intend to keep the proceeds from all "investments" to themselves and/or unfairly distribute to insiders like the "influencers". Opportunity makes a thief.
Actually in most countries lotteries are pretty heavily regulated to ensure that they are indeed redistributing a share of ticket sales as winnings and are also fairly selecting winners. ICOs are like unregulated lotteries that might intend to keep the proceeds from all "investments" to themselves and/or unfairly distribute to insiders like the "influencers". Opportunity makes a thief.
People derive enjoyment from lotteries and scratch tickets. I agree that some people exhibit problematic behavior by spending some of their limited funds on these items but that is their right. I'd rather these entertainment sources be captured by the state for the good of all its people than administered privately or clandestinely.
It would be better for them to derive their enjoyment from participating in an actual investment market. They'll learn something useful instead just refining their superstitious rituals.
Imagine if anyone could buy $5 worth of stock for the product they're buying at 7-11. Over-time these small purchases would let them amass a sizeable base of assets, and all the while they'd have a stake in parts of the real economy, which would incentivize them to invest time in learning how it works. The educational value alone would be enormous.
Instead we foolishly prohibit people from participating in many of the most lucrative sectors of the economy, which corrals them into low-value dead-end activities like playing the lottos. If you want someone to grow, you don't over-protect them. That applies to raising children, and it applies to governance of the public at large.
Imagine if anyone could buy $5 worth of stock for the product they're buying at 7-11. Over-time these small purchases would let them amass a sizeable base of assets, and all the while they'd have a stake in parts of the real economy, which would incentivize them to invest time in learning how it works. The educational value alone would be enormous.
Instead we foolishly prohibit people from participating in many of the most lucrative sectors of the economy, which corrals them into low-value dead-end activities like playing the lottos. If you want someone to grow, you don't over-protect them. That applies to raising children, and it applies to governance of the public at large.
But you do realize that without the lotto, they'll go to underground poker games, underground lotto games, or drink booze.
The gvt lotto was not created before people played lottery, it was invented because people want to play chance games anyway and that's a great way to build roads at the same time.
The gvt lotto was not created before people played lottery, it was invented because people want to play chance games anyway and that's a great way to build roads at the same time.
Would they? If security issuance wasn't centralized through prohibitions on unregistered offerings, you don't think there would be a vibrant market for micro-cap companies, with extensive retail marketing in places like convenient stores, and with enough upside potential to take market share away from games of pure chance?
I think the real market could be potentially more exciting than lottos, if regulations didn't prevent securities from being marketed the way lottos are. In a way, the token sale frenzy demonstrated that.
I think the real market could be potentially more exciting than lottos, if regulations didn't prevent securities from being marketed the way lottos are. In a way, the token sale frenzy demonstrated that.
> Imagine if anyone could buy $5 worth of stock for the product they're buying at 7-11.
Yeah, and in ten years they might get $14, which will just give some extra profit to their creditors when they file for bankruptcy for unpaid medical bills, or be captured in a civil forfeiture. And if somehow they managed to keep it and actually save a couple grand, that just means they'll become ineligible for SNAP and lose much more in benefits.
People play the lottery because it represents something more than slaving yourself to make scraps. They are not stupid, and know the system is design to keep you poor, and that hoping to escape by amassing a few bucks is almost as delusional as expecting to win the lottery.
Yeah, and in ten years they might get $14, which will just give some extra profit to their creditors when they file for bankruptcy for unpaid medical bills, or be captured in a civil forfeiture. And if somehow they managed to keep it and actually save a couple grand, that just means they'll become ineligible for SNAP and lose much more in benefits.
People play the lottery because it represents something more than slaving yourself to make scraps. They are not stupid, and know the system is design to keep you poor, and that hoping to escape by amassing a few bucks is almost as delusional as expecting to win the lottery.
>>Yeah, and in ten years they might get $14, which will just give some extra profit to their creditors when they file for bankruptcy for unpaid medical bills, or be captured in a civil forfeiture. And if somehow they managed to keep it and actually save a couple grand, that just means they'll become ineligible for SNAP and lose much more in benefits.
How is that any different than matching two numbers on a lotto ticket and winning $10, or $1000?
With real-world investing, especially in micro-caps, they have a chance to hit it big as well, and make millions. So it has the same dream escapist aspect. And it provides a much more solid grounding for the future than throwing money in a game that you are mathematically guaranteed to lose if you play long enough. Investing is not a game of pure chance, and it is not zero sum. With enough skill, you can actually make money, and your skill can improve over time, and doing so actually improves how the economy as a whole allocates capital.
How is that any different than matching two numbers on a lotto ticket and winning $10, or $1000?
With real-world investing, especially in micro-caps, they have a chance to hit it big as well, and make millions. So it has the same dream escapist aspect. And it provides a much more solid grounding for the future than throwing money in a game that you are mathematically guaranteed to lose if you play long enough. Investing is not a game of pure chance, and it is not zero sum. With enough skill, you can actually make money, and your skill can improve over time, and doing so actually improves how the economy as a whole allocates capital.
> How is that any different than matching two numbers on a lotto ticket and winning $10, or $1000?
That's immediately spendable; it doesn't sit somewhere where it can be taken (by illegal or legal means). That's also one of the reasons why people join susus instead of just saving, for example.
> With real-world investing, especially in micro-caps, they have a chance to hit it big as well, and make millions.
There's no change of making millions in a day, or week. The few "rags-to-riches" trading millionaires progressively amassed their money over at least a few years. But that means losing benefits, which people can't afford to risk. Like I said, the system is designed to keep them there, and they know it.
That's immediately spendable; it doesn't sit somewhere where it can be taken (by illegal or legal means). That's also one of the reasons why people join susus instead of just saving, for example.
> With real-world investing, especially in micro-caps, they have a chance to hit it big as well, and make millions.
There's no change of making millions in a day, or week. The few "rags-to-riches" trading millionaires progressively amassed their money over at least a few years. But that means losing benefits, which people can't afford to risk. Like I said, the system is designed to keep them there, and they know it.
Yea scratch cards can be immediately spendable, but weekly lottos aren't. People wait, just as they wait for a volatile penny stock to spike in price. I really don't see enough of a difference between the profit potential of penny stocks, and that of lotto tickets, to assume they would be treated any differently by retail consumers, except for the long-term differences, that would make the former more beneficial to the consumer.
>>There's no change of making millions in a day, or week. The few "rags-to-riches" trading millionaires progressively amassed their money over at least a few years.
Crypto-assets have seen many thousands of percent gains in a matter of days. I don't know if you could turn $2 into a million in one week the way you can with a lotto, but the gains I think are substantial enough to compete for lotto spending, especially considering that odds of gains can be improved by the buyer through research and analysis.
>>There's no change of making millions in a day, or week. The few "rags-to-riches" trading millionaires progressively amassed their money over at least a few years.
Crypto-assets have seen many thousands of percent gains in a matter of days. I don't know if you could turn $2 into a million in one week the way you can with a lotto, but the gains I think are substantial enough to compete for lotto spending, especially considering that odds of gains can be improved by the buyer through research and analysis.
I can't resist the snark, but it's serious too. Lottery tickets have better returns than early stage startups.
> The idea that the government has a right to deem a certain class of investors as "unsophisticated", and thus better off deprived of the right to decide for themselves what to invest in, and prohibit an entire class of interactions, on the basis that too many instances of that class are fraudulent, upends basic principles of liberal society.
Counterpoint: The government declares which investors are savvy or not ("accreditation" based on the rules) only partly because they believe certain people are unqualified to make certain investment decisions based on knowledge. The other major factor is whether an investor is more likely to lose amounts material to their survival.
Two items to consider:
1. A person making enough spare income to take such risks is someone who likely won't suffer nearly as much if the risk goes south. Someone making 200,000/y (ok, excluding SF/NY since apparently legislators hardcoded a value like idiots) or who has 1mil assets after the primary home will probably feel pretty bad if a 25,000 investment goes to zero, but they probably won't be going on public assistance.
2. That said, regarding qualification to actually make the decision, a person who has the net worth or the income flow to qualify for accreditation may also be in a better position to invest in concepts being developed by people with past track records or increased odds of success. This may be a general result of being connected to such people (what you might call "the old boys' club," but this can broadly apply to any network of people) or may simply stem from being better positioned to evaluate/diligence the concept e.g. because they're applying their specialized knowledge to evaluate a new idea which they feel has value.
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Idealism is one thing, but if you're more likely to be preyed upon because you don't have the knowledge or connections to make more informed investment decisions and are more willing to increase the tax burden on your fellow person as a result of investment decisions gone sour, that's where the government steps in to protect the general population.
As a reminder, this is one of the few responsibilities the government actually has in any society, even the most libertarian.
Anyway, this isn't really a debate. If you disagree, you're empowered to do what you wish; I've made my counterpoint above and don't intend to go further.
Counterpoint: The government declares which investors are savvy or not ("accreditation" based on the rules) only partly because they believe certain people are unqualified to make certain investment decisions based on knowledge. The other major factor is whether an investor is more likely to lose amounts material to their survival.
Two items to consider:
1. A person making enough spare income to take such risks is someone who likely won't suffer nearly as much if the risk goes south. Someone making 200,000/y (ok, excluding SF/NY since apparently legislators hardcoded a value like idiots) or who has 1mil assets after the primary home will probably feel pretty bad if a 25,000 investment goes to zero, but they probably won't be going on public assistance.
2. That said, regarding qualification to actually make the decision, a person who has the net worth or the income flow to qualify for accreditation may also be in a better position to invest in concepts being developed by people with past track records or increased odds of success. This may be a general result of being connected to such people (what you might call "the old boys' club," but this can broadly apply to any network of people) or may simply stem from being better positioned to evaluate/diligence the concept e.g. because they're applying their specialized knowledge to evaluate a new idea which they feel has value.
---
Idealism is one thing, but if you're more likely to be preyed upon because you don't have the knowledge or connections to make more informed investment decisions and are more willing to increase the tax burden on your fellow person as a result of investment decisions gone sour, that's where the government steps in to protect the general population.
As a reminder, this is one of the few responsibilities the government actually has in any society, even the most libertarian.
Anyway, this isn't really a debate. If you disagree, you're empowered to do what you wish; I've made my counterpoint above and don't intend to go further.
>>The government declares which investors are savvy or not ("accreditation" based on the rules) only partly because they believe certain people are unqualified to make certain investment decisions based on knowledge.
You're just rewording what I said.
What you're promoting is based on a principle that is roundly rejected when applied in every other sphere of life.
>>As a reminder, this is one of the few responsibilities the government actually has in any society, even the most libertarian.
Protecting people from their own bad judgement is not a responsibility that the government has in a free (libertarian) society.
That's why we let people read whatever literature they want, no matter how toxic the ideas it promotes, and to eat as much as they want, exercise as little as they want, engage in as much unprotected sex as they want, and drink and smoke as much they want.
When it comes to crime, the government does have a role in protecting people, but the way it traditionally protects them is by intervening when someone reports a crime in progress, or punishing individuals after they've committed a crime, to create a deterrent effect, not by prohibiting people from venturing into dangerous areas of the city, or prohibiting certain types of relationships that are more likely to lead to criminal incidents.
Preemptive restrictions applied to innocent people is not how crime is addressed in a free society.
You're just rewording what I said.
What you're promoting is based on a principle that is roundly rejected when applied in every other sphere of life.
>>As a reminder, this is one of the few responsibilities the government actually has in any society, even the most libertarian.
Protecting people from their own bad judgement is not a responsibility that the government has in a free (libertarian) society.
That's why we let people read whatever literature they want, no matter how toxic the ideas it promotes, and to eat as much as they want, exercise as little as they want, engage in as much unprotected sex as they want, and drink and smoke as much they want.
When it comes to crime, the government does have a role in protecting people, but the way it traditionally protects them is by intervening when someone reports a crime in progress, or punishing individuals after they've committed a crime, to create a deterrent effect, not by prohibiting people from venturing into dangerous areas of the city, or prohibiting certain types of relationships that are more likely to lead to criminal incidents.
Preemptive restrictions applied to innocent people is not how crime is addressed in a free society.
> If you're more likely to be preyed upon because you don't have the knowledge or connections to make more informed investment decisions and are more willing to increase the tax burden on your fellow person as a result of investment decisions gone sour, that's where the government steps in to protect the general population. As a reminder, this is one of the few responsibilities the government actually has in any society, even the most libertarian.
I don't know where you get your ideas of what libertarians are or aren't but, the general basis of libertarianism is that government gives your recourse for physical harm, defrauding via lies of commission (on principle and independent of the individual's ability to protect themselves), and typically property rights (though libertarians often disagree why). Generally the truth is considered to be an absolute defense against an accusation of fraud, and the justification of fraud is not a function of government having to 'bail people out', and in general, libertarianism does not consider it the role of government to "protect the general population". Typically, libertarians believe this under the premise that so often governments have done (and continue to do) shady things under the "guise of protecting the general population".
I don't know where you get your ideas of what libertarians are or aren't but, the general basis of libertarianism is that government gives your recourse for physical harm, defrauding via lies of commission (on principle and independent of the individual's ability to protect themselves), and typically property rights (though libertarians often disagree why). Generally the truth is considered to be an absolute defense against an accusation of fraud, and the justification of fraud is not a function of government having to 'bail people out', and in general, libertarianism does not consider it the role of government to "protect the general population". Typically, libertarians believe this under the premise that so often governments have done (and continue to do) shady things under the "guise of protecting the general population".
Same story different day: https://www.history.com/news/roaring-twenties-scams-ponzi-wa...
not to be that guy, but… username checks out! (inb4 hn is turning into reddit)
Yea I believe that consensual interactions, whether it's in the civil sphere, with high-risk sexual practices, or the economic sphere, with high-risk investments, should not face any government prohibition.
I'd argue that for the interaction to be truly consensual, both parties must be fully informed about the risks and rewards of the interaction that they are choosing to participate in. My reading of the SEC press release leads me to believe that the primary reason for requiring filing with the SEC for a sale of this nature is to ensure that all relevant information is available for the parties involved, thus allowing the interaction to be truly consensual.
You don't prohibit an entire class of interactions, and then approve them on a case-by-case basis when the centralized authority deems that the interaction is consensual.
Approval-encumbered interaction is not consistent with how free society works, where people are presumed innocent, and not burdened with restrictions, until proven guilty.
Speech used to be like that. You had to get approval from the state, before being allowed to publish. This was to prevent things like libel. It was called Prior Restraint. Eventually courts ruled it violated the Freedom of Speech, and we are all vastly better for that ruling.
In practice it's also not flexible enough for innovation. It regiments only one acceptable way to establish an informed and consensual interaction, which precludes innovative new ways opened up by technology.
Approval-encumbered interaction is not consistent with how free society works, where people are presumed innocent, and not burdened with restrictions, until proven guilty.
Speech used to be like that. You had to get approval from the state, before being allowed to publish. This was to prevent things like libel. It was called Prior Restraint. Eventually courts ruled it violated the Freedom of Speech, and we are all vastly better for that ruling.
In practice it's also not flexible enough for innovation. It regiments only one acceptable way to establish an informed and consensual interaction, which precludes innovative new ways opened up by technology.
You’re also likely the first to whine when someone “steals” your coins (not your keys, not your coins) and about how wildly unregulated the exchange that exit scammed you is. This conversation plays out regularly in pro crypto subreddits. Privatized gains, socialized losses.
Likely that the majority here agrees in principal, but those things you're describing are different practices.
You might liken an underground ICO to a bug chaser party where some participant doesn't even know what that is.
That kind of stuff is a real problem, and there are plenty of scenarios where government prohibition isn't overstepping. In those cases, we're not protecting you from yourself, but rather protecting everyone else from you and your poor decisions that make your misfortune a burden to society.
You might liken an underground ICO to a bug chaser party where some participant doesn't even know what that is.
That kind of stuff is a real problem, and there are plenty of scenarios where government prohibition isn't overstepping. In those cases, we're not protecting you from yourself, but rather protecting everyone else from you and your poor decisions that make your misfortune a burden to society.
>>You might liken an underground ICO to a bug chaser party where some participant doesn't even know what that is.
The vast majority of people applauding restrictions on securities offerings would vote against any party that advocated similar restrictions on high-risk sexual activity. That shows that most people are just conforming to the popular viewpoint, and not independently and critically thinking about the issue.
That is dangerous, because these issues are too complex, and too important, to decide on nothing more than what position is the popular fad. They have very significant consequences for huge numbers of people. We as a society need every single voter to fully understand the principle behind every law, and be able to justify it, because the consequence for violating the laws is that a person has their property seized, or their freedom taken away.
Also, I think your analogy is inappropriate. People investing in crypto tokens is not going to do damage anywhere close to that done by "bug chaser parties". It's just money, if that (much of it is in the form of other crypto-tokens, so we're not even talking about fiat currency being risked).
Even if you accept that people bankrupting themselves is a terrible outcome for society, the fact remains that people have plenty of other ways to blow their money. I can't see how these investments not being prohibited would make the problem any worse.
But what a lack of prohibitions and a free market in soliciting and making investments would do is provide people with valuable exposure to the real investment world, and allow them to get a better understanding of how marketing hype, and speculative bubbles work, and how to identify real value. It would also allow people in much lower socio-economic groups to raise capital.
Finally, no one is saying that victimizing behaviour, like fraud, should be legal. The question is, how do you address predatory behaviour. The answer in the West has traditionally been to punish those convicted of committing it. Cookie-cutter rules that subordinate every participant in an industry to a centralized gatekeeper, are disproportionate to the threat of fraud and inconsistent with the principles of a free society, like the presumption of innocence and the freedom of association and contract.
They overly regiment the market, which inhibits innovation, and create barriers to entry to various sectors of the economy that exacerbate income inequality.
The vast majority of people applauding restrictions on securities offerings would vote against any party that advocated similar restrictions on high-risk sexual activity. That shows that most people are just conforming to the popular viewpoint, and not independently and critically thinking about the issue.
That is dangerous, because these issues are too complex, and too important, to decide on nothing more than what position is the popular fad. They have very significant consequences for huge numbers of people. We as a society need every single voter to fully understand the principle behind every law, and be able to justify it, because the consequence for violating the laws is that a person has their property seized, or their freedom taken away.
Also, I think your analogy is inappropriate. People investing in crypto tokens is not going to do damage anywhere close to that done by "bug chaser parties". It's just money, if that (much of it is in the form of other crypto-tokens, so we're not even talking about fiat currency being risked).
Even if you accept that people bankrupting themselves is a terrible outcome for society, the fact remains that people have plenty of other ways to blow their money. I can't see how these investments not being prohibited would make the problem any worse.
But what a lack of prohibitions and a free market in soliciting and making investments would do is provide people with valuable exposure to the real investment world, and allow them to get a better understanding of how marketing hype, and speculative bubbles work, and how to identify real value. It would also allow people in much lower socio-economic groups to raise capital.
Finally, no one is saying that victimizing behaviour, like fraud, should be legal. The question is, how do you address predatory behaviour. The answer in the West has traditionally been to punish those convicted of committing it. Cookie-cutter rules that subordinate every participant in an industry to a centralized gatekeeper, are disproportionate to the threat of fraud and inconsistent with the principles of a free society, like the presumption of innocence and the freedom of association and contract.
They overly regiment the market, which inhibits innovation, and create barriers to entry to various sectors of the economy that exacerbate income inequality.
we ran that experiment in 2017 and everyone got rekt
Please, thats ridiculous. It exists as a moat that punishes some and benefits another at the cost of the tax payer and the common investor.
> just listen to Kik's own words
if they had raised money by telling a story that they didn't believe to the VC's to raise money from the VC's, then they would have been guilty of something by their own words: but they didn't, and their point in saying that was they did not do that. Instead, they pivoted...
The money they raised in the ICO has the SEC upset, but not for the reason your example refers to, but simply for lack of registration.
if they had raised money by telling a story that they didn't believe to the VC's to raise money from the VC's, then they would have been guilty of something by their own words: but they didn't, and their point in saying that was they did not do that. Instead, they pivoted...
The money they raised in the ICO has the SEC upset, but not for the reason your example refers to, but simply for lack of registration.
A refreshing perspective compared to the usual HN "it's your fault (& no one else's) that you got defrauded on Kickstarter" position.
I hardly find that perspective “the usual [on] HN”.
I mean it is generally your fault when you get scammed and your money is gone. Unless they scammed a third party who gave your money away. That is an entirely different can of worms.
It is also the scammers fault for scamming, and they face their own set of consequences.
I also think there is this bizarre double talk on HN where people say sophisticated investor status shouldn't be a thing while also condemning ICOs, which is exactly what happens when sophisticated investor status isn't a thing.
It is also the scammers fault for scamming, and they face their own set of consequences.
I also think there is this bizarre double talk on HN where people say sophisticated investor status shouldn't be a thing while also condemning ICOs, which is exactly what happens when sophisticated investor status isn't a thing.
On a side note, I wish the term, "sophisticated investor" wasn't the official one.
It's a misnomer because it implies there is some kind of knowledge or skill threshold required.
What it really means is "has enough money they can afford to lose some".
In reality, there are plenty of people who have tons of money and not a clue how to invest it well.
It's a misnomer because it implies there is some kind of knowledge or skill threshold required.
What it really means is "has enough money they can afford to lose some".
In reality, there are plenty of people who have tons of money and not a clue how to invest it well.
> I wish the term, "sophisticated investor" wasn't the official one
It's not. "Accredited investor" is the official term. "Sophisticated investor" is a higher finance-colloquial bar, typically requiring one follow institutional best practices (e.g. legal and risk reviews).
It's not. "Accredited investor" is the official term. "Sophisticated investor" is a higher finance-colloquial bar, typically requiring one follow institutional best practices (e.g. legal and risk reviews).
LOL
"The complaint further alleges that Kik marketed the Kin tokens as an investment opportunity. Kik allegedly told investors that rising demand would drive up the value of Kin, and that Kik would undertake crucial work to spur that demand, including by incorporating the tokens into its messaging app, creating a new Kin transaction service, and building a system to reward other companies that adopt Kin. At the time Kik offered and sold the tokens, the SEC alleges these services and systems did not exist and there was nothing to purchase using Kin."
Who even bought this stuff? Doesn't this throw up all the red flags of a scam ICO?
Who even bought this stuff? Doesn't this throw up all the red flags of a scam ICO?
> Who even bought this stuff?
A buddy of mine from my home town called me up and needed a developer to work on his "crypto-currency hedge fund." This guy has always been a bit dodgy on looking for the least amount of resistance to the most money.
I tried tell tell him all the reasons it was a bad idea. He claims he had done all the research (guy is not a programmer, couldn't pass Anatomy I the two times he took it in an attempt to start his career as a radiologist .. for the money -- sure as hell couldn't do the maths).
He told me investments would be a minimum of $250k and he was promising (yes promising) 120% returns. ... I told him he needed to be careful, because with that type of pitch, he would most likely end up in a ditch somewhere two to to the head .. or jail .. and he should hope for jail.
Besides telling him it was a bad idea, I told him he couldn't afford me. He told me he'd pay more than whatever I was making. I told him what I made .. and that I wouldn't take anything in crypto currency. That ended that.
He had several tens of thousands in different crypto currencies (before the BTC bubble broke in 2018). So in response to your question: this kind of person.
A buddy of mine from my home town called me up and needed a developer to work on his "crypto-currency hedge fund." This guy has always been a bit dodgy on looking for the least amount of resistance to the most money.
I tried tell tell him all the reasons it was a bad idea. He claims he had done all the research (guy is not a programmer, couldn't pass Anatomy I the two times he took it in an attempt to start his career as a radiologist .. for the money -- sure as hell couldn't do the maths).
He told me investments would be a minimum of $250k and he was promising (yes promising) 120% returns. ... I told him he needed to be careful, because with that type of pitch, he would most likely end up in a ditch somewhere two to to the head .. or jail .. and he should hope for jail.
Besides telling him it was a bad idea, I told him he couldn't afford me. He told me he'd pay more than whatever I was making. I told him what I made .. and that I wouldn't take anything in crypto currency. That ended that.
He had several tens of thousands in different crypto currencies (before the BTC bubble broke in 2018). So in response to your question: this kind of person.
It's important to note that while this person seems, you know, not very smart, the laws against unlicensed securities exist precisely to protect this kind of person from getting themselves in trouble.
I'm no lawyer, but it certainly seems like Kik worked to circumvent these laws in order to raise a bunch of money to keep their business alive. I look forward to seeing where the SEC investigation/trial goes.
I'm no lawyer, but it certainly seems like Kik worked to circumvent these laws in order to raise a bunch of money to keep their business alive. I look forward to seeing where the SEC investigation/trial goes.
>> It's important to note that while this person seems, you know, not very smart, the laws against unlicensed securities exist precisely to protect this kind of person from getting themselves in trouble.
Which is counterproductive, really. Natural selection is the only effective cure for stupidity known to the mankind. Stupid people should be allowed to make stupid mistakes and suffer all the consequences.
Which is counterproductive, really. Natural selection is the only effective cure for stupidity known to the mankind. Stupid people should be allowed to make stupid mistakes and suffer all the consequences.
When the poor get poorer because of their stupidity, they don't die. They regroup, kill the rich, and take the money.
I think it was Buffet who said that the stock market was a giant machine for taking money from the impatient and giving it to the patient.
>Who even bought this stuff? Doesn't this throw up all the red flags of a scam ICO?
What’s amazing is they raise nearly $100M selling the token, spent $5M in legal fees and then began raising additional legal fees (over $5M to date) from the public to continue to fight the SEC and anticipation of future litigation with the SEC.
They raised $100M and can’t be bothered to use that for their own legal fees...And the public is apparently happy giving them millions more, it’s insanity.
What’s amazing is they raise nearly $100M selling the token, spent $5M in legal fees and then began raising additional legal fees (over $5M to date) from the public to continue to fight the SEC and anticipation of future litigation with the SEC.
They raised $100M and can’t be bothered to use that for their own legal fees...And the public is apparently happy giving them millions more, it’s insanity.
It isn't insanity if you used other cryptos to buy big on Kik/Kin and they only way to protect your position is to not have it go away.
Well it’s throwing good money after bad.
I believe it was Einstein who defined insanity as performing the same task over and over and expecting different results.
If you invested/bought Kik because you wanted a “position” to make money on it, then it fits the definition of a security, so by throwing more money to fight the SEC to claim it’s not a security is a losing battle by your own “position”.
The real irony is that the Kik token probably was structured as a non-security utility token, it’s only the CEO statements/marketing of the token as something that will become extremely valueable to investors that will come back and haunt them.
I believe it was Einstein who defined insanity as performing the same task over and over and expecting different results.
If you invested/bought Kik because you wanted a “position” to make money on it, then it fits the definition of a security, so by throwing more money to fight the SEC to claim it’s not a security is a losing battle by your own “position”.
The real irony is that the Kik token probably was structured as a non-security utility token, it’s only the CEO statements/marketing of the token as something that will become extremely valueable to investors that will come back and haunt them.
https://quoteinvestigator.com/2017/03/23/same/
Not Einstein. It's a quote from a 1981 Narcotics Anonymous pamphlet.
Not Einstein. It's a quote from a 1981 Narcotics Anonymous pamphlet.
Honestly, that sounds a lot less scammy than nearly every other ICO out there. Kik is an established company with a social network product used by millions. Given their market position, I think their idea isn't totally farfetched. I could be missing some aspects that indicate it is a total scam, but just from that paragraph alone (which is all I know about the topic), I could see warranted interest from investors.
Look at all the payment integrations that've been added to platforms like Facebook lately. It isn't cryptocurrency, but the idea seems to be pretty similar.
Look at all the payment integrations that've been added to platforms like Facebook lately. It isn't cryptocurrency, but the idea seems to be pretty similar.
There was no disclosure that they were hemorrhaging money nor that their product was significantly unprofitable though. I imagine interest would've been a lot less had that fact been public at the time. They were literally selling it as "invest now and we all make a lot of money later"
I think the SEC is interested in the conditions around their ICO, the misleading tactics, and the aftermath of it, more than the fact that they did an ICO
I think the SEC is interested in the conditions around their ICO, the misleading tactics, and the aftermath of it, more than the fact that they did an ICO
The only times I saw people use kik for anything is when I was in the mood for a little recreational degeneracy and made the mistake to browse 4chan's /b/ and suddenly spammy kik threads pop up left and right advertising "trades" "no rules" "teens".
That is not to say, this is the only kik users, it's just the only instances I anecdotally saw people advertise their kik handles, and it didn't leave a good impression. This ICO stuff made me think of that.
That is not to say, this is the only kik users, it's just the only instances I anecdotally saw people advertise their kik handles, and it didn't leave a good impression. This ICO stuff made me think of that.
But not an established profitable company. This is a money-losing startup looking for another funding round.
Vast majority of people don't understand how Internet startups are run. Even here on HN, people need frequent reminders.
Myself, for a long time I believed tech startups are micro-R&D for new technologies. Couple years of HN and in the local startup community later, I finally realized that a lot of Internet startups tend to turn investor money into business model R&D - i.e. ever more innovative ways to break an existing market and siphon off enough wealth to get flipped and net the founders FU money. Regular people don't know any of that; they don't understand how the game is played, or why - they only enjoy free web services and cheap pirate taxi rides.
Myself, for a long time I believed tech startups are micro-R&D for new technologies. Couple years of HN and in the local startup community later, I finally realized that a lot of Internet startups tend to turn investor money into business model R&D - i.e. ever more innovative ways to break an existing market and siphon off enough wealth to get flipped and net the founders FU money. Regular people don't know any of that; they don't understand how the game is played, or why - they only enjoy free web services and cheap pirate taxi rides.
Kin definitely isn’t a scam. My company has implemented Kin into our app with over 10 million users and many other apps have as well.
People lower their shields when scammy stuff comes from something they trust. Kik has been around for 8 years and was pretty popular at one point, so its long-time users wouldn't notice how much it seems like a desperate moneygrab.
One is the key aspects of ICO pumping was reputation building. So, launching a currency by leveraging a trusted or recognizable name lends credibility to the extent unsophisticated people might buy and assume “they know what they’re doing.”
> scam ICO
It seems like you might of repeated yourself...
This is the cryptocurrency roosters coming home to roost, no?
It seems like you might of repeated yourself...
This is the cryptocurrency roosters coming home to roost, no?
Ethereum also had an ICO (paid in Bitcoin) and it delivered. Cosmos held an ICO and delivered. Not all ICOs are scams.
>Ethereum also had an ICO (paid in Bitcoin) and it delivered.
According to the SEC it was also an illegal offering of a security, and its receiving special treatment bc they considered it to have matured and no longer be considered a security, therefore grandfathered its grandfathered in unlike any other ICO.
No one else is going to have the good fortune of being able to offer an unregistered security then mature into a non-security with the SEC acting first.
According to the SEC it was also an illegal offering of a security, and its receiving special treatment bc they considered it to have matured and no longer be considered a security, therefore grandfathered its grandfathered in unlike any other ICO.
No one else is going to have the good fortune of being able to offer an unregistered security then mature into a non-security with the SEC acting first.
They “delivered” only because they sold wheelbarrows to the 49ers. As gold rush history will tell you, most fortunes were made by merchants not miners.
Name a non-ICO-infrastructure ICO that isn’t a scam.
Name a non-ICO-infrastructure ICO that isn’t a scam.
Ethereum as infrastructure is also a dicey proposition. It works, slowly, but it doesn’t seem like there’s a lot of demand for “dapps” outside ICO tokens, gambling, and the odd Ponzi scheme. The smart contract revolution at this point is complete vapor ware.
Other popular smart contracts right now: an ETH-backed token that uses a derivative to maintain a fairly stable value, the Uniswap decentralized exchange, and games with non-fungible tokens for player assets.
Ethereum is currently being used for decentralized finance. It's not vaporware at all: https://defipulse.com/
This market is not validated by anything close to mainstream.
I will try to not laugh at this the next time I pay escrow and other closing fees. We are in Web 1.0 in terms of the technological application of programmable consensus.
One, don’t mock people on HN. Two, you’re going to need to cite real examples to support your claim, not just spout a bunch of buzzwords.
Quick search of “ethereum escrow” returns no real implementations that avoid fees or human intermediaries. Every single blog post I’ve read that tries to sketch an alternative is incredibly poorly thought through and still vulnerable to fraud. That is why they are just blog posts and not real, not because it’s “still early days.” I think it’s fair to say trustless escrow is vaporware.
Quick search of “ethereum escrow” returns no real implementations that avoid fees or human intermediaries. Every single blog post I’ve read that tries to sketch an alternative is incredibly poorly thought through and still vulnerable to fraud. That is why they are just blog posts and not real, not because it’s “still early days.” I think it’s fair to say trustless escrow is vaporware.
I'm not going to argue against ignorance. One can simply google the technology and see for themselves instead of drinking the Kool-aid from others. There's a reason for the large push against crypto; an agenda.
Programmable consensus and smart contracts are easy to learn concepts.
https://medium.com/coinmonks/escrow-service-as-a-smart-contr...
*Also one should know it is offensive to call another's work vaporware. Especially, when one is relying on anecdotes. Next I'm going to be told IBM and Google are wasting their time and shareholder money on blockchain.
Programmable consensus and smart contracts are easy to learn concepts.
https://medium.com/coinmonks/escrow-service-as-a-smart-contr...
*Also one should know it is offensive to call another's work vaporware. Especially, when one is relying on anecdotes. Next I'm going to be told IBM and Google are wasting their time and shareholder money on blockchain.
That's for posting an actual citation. The author of that blog post explicitly states in a follow up comment: "I totally agree that it makes no business sense" and that his objective is merely "to explain how a smart contract implements the terms of a contract."
So yes, fair to say it's vapor i.e. not a real thing. That may be harsh but it is a fair and supported criticism, whereas your prior comment merely engaged in unsupported mockery.
So yes, fair to say it's vapor i.e. not a real thing. That may be harsh but it is a fair and supported criticism, whereas your prior comment merely engaged in unsupported mockery.
A lot of the building blocks for mainstream use don't exist, but could conceivably emerge in time given Ethereum is Turing Complete.
There are projects with a very high potential to provide those building blocks in development right now, like Matter Labs' use of zero-knowledge proofs to scale Ethereum:
https://matterlabs.dev/
But yea it's all very speculative right now. I speculate it will work, but it'll depend on what the various players in the industy actually accomplish.
There are projects with a very high potential to provide those building blocks in development right now, like Matter Labs' use of zero-knowledge proofs to scale Ethereum:
https://matterlabs.dev/
But yea it's all very speculative right now. I speculate it will work, but it'll depend on what the various players in the industy actually accomplish.
What did Ethereum delivery? What works on their centralised house of cards network?
[deleted]
I think the point is those are the outliers and the majority are scams.
thats not distinct from funding models that you respect, don't you find that at least weird?
Ethereum is an outlier in the cryptocurrency world?
Ethereum is the reason there have been so many ICOs in the past 3 years.
Ethereum is the reason there have been so many ICOs in the past 3 years.
Yes, Ethereum is an outlier in the sense its ICO wasn't a complete scam.
ICO is a fancy word for "Kick Starter" or crowdfunding. That's why all the crypto people are disagreeing with you.
Are most ICO's scams? Yeah sadly. Are there lots of scams on Kickstarter/indiegogo/etc? Yes sadly.
But an ICO itself isn't necessarily a scam (although I concede 99% of them are)
Are most ICO's scams? Yeah sadly. Are there lots of scams on Kickstarter/indiegogo/etc? Yes sadly.
But an ICO itself isn't necessarily a scam (although I concede 99% of them are)
Kickstarter creates no expectation of profit by purchasers.
An ICO doesn't imply potential profit either.
The problem is that most of them are run by scammers, which do promise profit.
The problem is that most of them are run by scammers, which do promise profit.
The question is no longer if you have been scammed on Kickstarter, it's how many times have you been scammed.
When I back a kickstarter, I'm probably going to get something like a signed book or a credit in a game - maybe not but at least most of the time.
In an ICO, I get a... theoretical security? A kik kin coin that may or may not have value?
In an ICO, I get a... theoretical security? A kik kin coin that may or may not have value?
I think you're confusing ICOs with market value.
You don't back an ICO because its "value will go to the moon", you back an ICO because invents a new way for -- Creators to get paid instead of using advertisements, creative ways to organize some kind of distributed system.
The scam comes from them not completing their promises and leaving with the money and no "product". The coin's value is irrelevant (as long as it isn't 0)
You don't back an ICO because its "value will go to the moon", you back an ICO because invents a new way for -- Creators to get paid instead of using advertisements, creative ways to organize some kind of distributed system.
The scam comes from them not completing their promises and leaving with the money and no "product". The coin's value is irrelevant (as long as it isn't 0)
Who even bought this stuff?
A lot of 'investors' are firm believers in the Great Fool theory of investment. Basically they are completely aware that it is a scam, they're just banking on the fact that they can get in, take some profit, and get out before the rest of the world catches on that it is a scam.
A lot of 'investors' are firm believers in the Great Fool theory of investment. Basically they are completely aware that it is a scam, they're just banking on the fact that they can get in, take some profit, and get out before the rest of the world catches on that it is a scam.
> Doesn't this throw up all the red flags of a scam ICO?
Is that a good or bad thing?
There was a short period of time when there was immense profits to be had from buying and quickly flipping obvious scam ICOs.
Is that a good or bad thing?
There was a short period of time when there was immense profits to be had from buying and quickly flipping obvious scam ICOs.
Agreed. The question isn't whether something is a financial scam; at this point, depending on your feelings about certain structures, a large part of the US economy is made up of financial scams. The question is whether it's a viable financial scam, and this one was so viable that the government had to step in.
Probably if they had invested in the right lobbyists and the right lawyers, they would have been able to engineer a level of indirection that this wouldn't have attracted attention.
Maybe they actually have, and will lose this case as millionaires.
Probably if they had invested in the right lobbyists and the right lawyers, they would have been able to engineer a level of indirection that this wouldn't have attracted attention.
Maybe they actually have, and will lose this case as millionaires.
> Who even bought this stuff?
My guess is that a lot of this money is dirty. There are also tax reasons, where money needs to be invested or is even expected to be lost.
My guess is that a lot of this money is dirty. There are also tax reasons, where money needs to be invested or is even expected to be lost.
Yes! ICOs were great money laundering opportunities.
The shmublic investors don’t have access to seed/series-A deals.
I personally feel that rando cryptocurrency vs Uber post IPO has similar alpha, but obviously quite different beta.
I personally feel that rando cryptocurrency vs Uber post IPO has similar alpha, but obviously quite different beta.
> Who even bought this stuff?
North Korea probably.
North Korea probably.
Actually:
> 167. [...] Kik declined to sell Kin to investors from certain countries, including Canada, China, Cuba, and North Korea.
> 167. [...] Kik declined to sell Kin to investors from certain countries, including Canada, China, Cuba, and North Korea.
This is HN. We all know that anyone from one of those countries that wanted to, could easily have put money into this just by changing their IP address.
Why Canada?
Per the complaint, Kik (a Canadian company) asked the Ontario Securities Commission whether the tokens would be considered a securities offering under Canadian law, and the OSC told them yes, so, Kik banned Canadian investors from participating in the ICO. However, Kik decided not to ask the SEC or any other foreign securities regulator their opinion, and just went ahead with the issuance in every other jurisdiction--except jurisdictions which companies are banned from doing business with, like NK and Cuba.
As international users, we have a vested interest in reining in the proclivity of American government departments to engage in extraterritorial expansion. We should wish to see them lose or be made to lose.
>Doesn't this throw up all the red flags of a scam ICO?
AFAICT many/most ICOs operated like this. Not all, certainly but the "raise money through hype about future values, with products far off or non-existant" model appeared to be the dominant one in '17 and '18.
AFAICT many/most ICOs operated like this. Not all, certainly but the "raise money through hype about future values, with products far off or non-existant" model appeared to be the dominant one in '17 and '18.
[deleted]
Kik Responds To SEC Complaint
> Eileen Lyon, Kik's General Counsel commented, "For the reasons set forth in our Wells Submission, the SEC's complaint against Kik is based on a flawed legal theory. Among other things, the complaint assumes, incorrectly, that any discussion of a potential increase in value of an asset is the same as offering or promising profits solely from the efforts of another; that having aligned incentives is the same as creating a 'common enterprise'; and that any contributions by a seller or promoter are necessarily the "essential" managerial or entrepreneurial efforts required to create an investment contract. These legal assumptions stretch the Howey test well beyond its definition, and we do not believe they will withstand judicial scrutiny."
https://www.prnewswire.com/news-releases/kik-responds-to-sec...
> Eileen Lyon, Kik's General Counsel commented, "For the reasons set forth in our Wells Submission, the SEC's complaint against Kik is based on a flawed legal theory. Among other things, the complaint assumes, incorrectly, that any discussion of a potential increase in value of an asset is the same as offering or promising profits solely from the efforts of another; that having aligned incentives is the same as creating a 'common enterprise'; and that any contributions by a seller or promoter are necessarily the "essential" managerial or entrepreneurial efforts required to create an investment contract. These legal assumptions stretch the Howey test well beyond its definition, and we do not believe they will withstand judicial scrutiny."
https://www.prnewswire.com/news-releases/kik-responds-to-sec...
Well they certainly have the money to fight the SEC in court. It'll be interesting to see how this pans out, although I'm not very optimistic for Kik.
Note that Kik has expressly stated that they have really wanted this case to go to court for some time now. They strongly believe that the SEC guidance so far has been vague and non-committal to the point of becoming damaging. They believe they have a case that Kin is not a security and that the Howey Test is being mis-applied to many cryptos. By going through with the suit they hope to fast-forward more concrete guidance from the SEC.
https://unchainedpodcast.com/kin-sets-up-5-million-defendcry...
https://unchainedpodcast.com/kin-sets-up-5-million-defendcry...
Is their intention to set a precedent with a sympathetic court?
I know a lot of other actions around the country are pushing the limits, hoping to get a favorable ruling and establish precedent (see: case vs. ACA being unconstitutional).
I know a lot of other actions around the country are pushing the limits, hoping to get a favorable ruling and establish precedent (see: case vs. ACA being unconstitutional).
They are looking to be the test case to set a precedent in order to force clarity around securities laws that are outdated and unclear when being applied to cryptocurrencies
The law has been the same since the 1920s. Adding crypto to the mix has zero affect on whether or not something is a security offering.
If it looks like a security, and smells like a security and behaves like a security...it is a security regardless of the the mechanism.
Is writing software protected by freedom of speech?
Is encoding a set of account values into a genesis block posted on GitHub a security offering?
Is encoding a set of account values into a genesis block posted on GitHub a security offering?
They are looking for a test case because, per the SEC document, they were bankrupt and have literally no alternative but to fight it, as any settled penalty will sink their business.
They're so fucked. Good riddance.
They're so fucked. Good riddance.
Interesting. The risk vs. reward seems apt in my opinion. If Kik ends up winning, it brings out clarity that a lot of people stand to benefit from.
Now is the time to do it.
This was my issue at the time too.. It was a horribly vague situation.
The SEC usually acts but the penalties are usually for 1/100th of the profits.
If Kik loses here they're just going to make them pay $1M 'penalty' and move on.
The SEC usually acts but the penalties are usually for 1/100th of the profits.
If Kik loses here they're just going to make them pay $1M 'penalty' and move on.
Not according to the page linked to on the SEC website:
>The SEC seeks a permanent injunction, disgorgement plus interest, and a penalty.
So they're seeking $55,000,000 USD of US investor funds, plus interest, plus a penalty.
That would bankrupt Kik and decimate the future of the project.
>The SEC seeks a permanent injunction, disgorgement plus interest, and a penalty.
So they're seeking $55,000,000 USD of US investor funds, plus interest, plus a penalty.
That would bankrupt Kik and decimate the future of the project.
https://coinmarketcap.com/currencies/kin/
People with skin in the game clearly think it's a big deal. Kin's price tanked by 25% today, and that's after a long decline since the Well's notice. That trading volume is telling too. They turned over about 10% of the outstanding shares. By comparison, a typical day for GOOGL is 0.5%.
People with skin in the game clearly think it's a big deal. Kin's price tanked by 25% today, and that's after a long decline since the Well's notice. That trading volume is telling too. They turned over about 10% of the outstanding shares. By comparison, a typical day for GOOGL is 0.5%.
That's...strange. If I make an illegal sale to one person for a thousand dollars I have to pay back every penny plus a penalty, but if I make an illegal sale to a thousand people for a hundred million dollars I only have to pay back one percent?
Why should penalties necessarily bankrupt the company? Shouldn't the penalty be proportional to the damage they created by doing things improperly?
There needs to be a punitive aspect as well. Simply taking away their profit doesn't discourage this in the future, as being caught isn't certain.
I'm not saying the company should be bankrupted, but it has to hurt them enough that they wouldn't want to risk trying again.
I'm not saying the company should be bankrupted, but it has to hurt them enough that they wouldn't want to risk trying again.
Hurt them enough so that nobody will try the same again, not just kik. But then again, bankrupting them isn't the wisest choice, if they pay enough taxes and their offences isn't too severe, it would be better to have them around employing people and paying taxes and wages vs it doesn't exist at all.
If I have nothing and rob a bank, should I get get to keep half? Why should the penalty bankrupt me?
No, that's a much different situation. Kik could have acted legally and still made a profit on this idea, although maybe less. In your example, clearly there is no "legal" way in which you could have robbed the bank
In their own words they couldn't make a profit...
As for their being no legal way to rob a bank, there are a whole bunch of folks from the 2009 mortgage crises who would beg to differ.
As for their being no legal way to rob a bank, there are a whole bunch of folks from the 2009 mortgage crises who would beg to differ.
Using other peoples money to pay for lawyers to defend against taking peoples money illegally. Yes I fully expected this to happen.
No idea how often they go after it, but if you pay your attorney with ill-gotten gains, those funds can be confiscated from the attorneys for restitution to the victims.
I imagine if you look into the case law long enough, you'll find a case where someone tried to shield their assets by "paying" it all to their lawyer, with the understanding the lawyer would later find a way to give a reasonable fraction of it back.
https://www.justice.gov/jm/jm-9-120000-attorney-fee-forfeitu...
9-120.000 - ATTORNEY FEE FORFEITURE GUIDELINES
9-120.000 - ATTORNEY FEE FORFEITURE GUIDELINES
Doesn't everyone publicly look forward to proving their case in court when the inevitable legal battle is obvious?
Not many folks say "Oh man I don't want the SEC to sue me, I'm gonna get creamed in court!"
Not many folks say "Oh man I don't want the SEC to sue me, I'm gonna get creamed in court!"
A lot of people think it, but if you're thinking it the last thing you want to do is publicize that and invite people (particularly the SEC) to ask "Why don't you want the SEC to sue you?"
A number of smaller ICOs just settled with the SEC and refunded the money to investors when they got a Wells Notice. Those are all the folks who said "Oh man I don't want the SEC to sue me, I'm gonna get creamed in court." Kik is different in that they have deep pockets, strong legal counsel, and a product that's been out there for 8 years.
A number of smaller ICOs just settled with the SEC and refunded the money to investors when they got a Wells Notice. Those are all the folks who said "Oh man I don't want the SEC to sue me, I'm gonna get creamed in court." Kik is different in that they have deep pockets, strong legal counsel, and a product that's been out there for 8 years.
> Kik is different in that they have deep pockets, strong legal counsel, and a product that's been out there for 8 years.
Except they don't. The only money they have is from an unregistered sale of securities which was only undertaken because they HAD NO MONEY. Their product costs more to run than it makes, and is irrelevant to the SEC lawsuit.
Except they don't. The only money they have is from an unregistered sale of securities which was only undertaken because they HAD NO MONEY. Their product costs more to run than it makes, and is irrelevant to the SEC lawsuit.
But they have that money today. They can spend it on lawyers. If they win, they still have it, if they lose, well now they go bankrupt just $55m more in the hole than before. It’s not like anything will happen to the executives.
> But they have that money today. They can spend it on lawyers.
Lawyers know that they cannot be paid with that money. If they lose it will be forfeited. Similarly you can't rob a bank and use the money to pay your lawyer.
> It’s not like anything will happen to the executives.
That's absolutely not true. It's not unreasonable to expect that the SEC might refer people to the DOJ for criminal prosecution and jail time would send a nice signal.
Lawyers know that they cannot be paid with that money. If they lose it will be forfeited. Similarly you can't rob a bank and use the money to pay your lawyer.
> It’s not like anything will happen to the executives.
That's absolutely not true. It's not unreasonable to expect that the SEC might refer people to the DOJ for criminal prosecution and jail time would send a nice signal.
> The only money they have is from an unregistered sale of securities which was only undertaken because they HAD NO MONEY.
Don't you think this would come out at trial? Sounds like the only reason they came out with an unregistered ICO was in order to generate revenue it needed to continue operating. That's a huge red flag for me if I'm an SEC investigator
Don't you think this would come out at trial? Sounds like the only reason they came out with an unregistered ICO was in order to generate revenue it needed to continue operating. That's a huge red flag for me if I'm an SEC investigator
It already came out upon initial investigation and most likely subpoenas:
>the company’s management predicted internally that it would run out of money in 2017. In early 2017, the company sought to pivot to a new type of business, which it financed through the sale of one trillion digital tokens. Kik sold its “Kin” tokens to the public, and at a discounted price to wealthy purchasers, raising more than $55 million from U.S. investors. The complaint alleges that Kin tokens traded recently at about half of the value that public investors paid in the offering.
>the company’s management predicted internally that it would run out of money in 2017. In early 2017, the company sought to pivot to a new type of business, which it financed through the sale of one trillion digital tokens. Kik sold its “Kin” tokens to the public, and at a discounted price to wealthy purchasers, raising more than $55 million from U.S. investors. The complaint alleges that Kin tokens traded recently at about half of the value that public investors paid in the offering.
Wow, when you see it laid out like that, crypto looks terrifying. Note, I mean as an investment independent of technological prospects.
Curious why? Investment in new & emerging technologies or markets is always high-risk: I've had years when my Emerging Markets index fund lost half its value, and I know friends that basically lost everything in the dot-com bubble. Hell, the S&P 500 lost 40% of its value in 2008.
I would hope that nobody is putting money into crypto that they need to live on. But for money that you aren't going to need for years, there's a good chance that some form of cryptocurrency will end up replacing much of the current financial system, and it makes sense to diversify bets across them.
I would hope that nobody is putting money into crypto that they need to live on. But for money that you aren't going to need for years, there's a good chance that some form of cryptocurrency will end up replacing much of the current financial system, and it makes sense to diversify bets across them.
>I've had years when my Emerging Markets index fund lost half its value, and I know friends that basically lost everything in the dot-com bubble.
Losing half of your investment's value and the dotcom bubble are nothing compared to crypto losses for some unfortunate investors, unfortunately.
Plenty, if not most of the cryptocurrencies out there... are down >95% from their peaks in late 2017/early 2018.
Losing half of your investment's value and the dotcom bubble are nothing compared to crypto losses for some unfortunate investors, unfortunately.
Plenty, if not most of the cryptocurrencies out there... are down >95% from their peaks in late 2017/early 2018.
Can you sketch what you mean by there being a good chance some type of cryptocurrency will replace the financial system of today?
Is the idea something along the lines of the double forces of greed and fear causing the perfect bubble? The one that doesn't pop because it eats its own downside on the way?
Why won't governments just shut down the on-ramp exchanges if the space ever looks like more than a way to gamble or make hidden-ish transactions?
Is the idea something along the lines of the double forces of greed and fear causing the perfect bubble? The one that doesn't pop because it eats its own downside on the way?
Why won't governments just shut down the on-ramp exchanges if the space ever looks like more than a way to gamble or make hidden-ish transactions?
Over the long-term (40-50 years) I would only call it a bubble in the sense that humanity's a bubble: yes, it may pop, but a bubble that lasts > a lifespan simply becomes reality. Over the short term (4-5 years), I think we're going to see some very bubblicious behavior and many people are going to lose their shirt, but that averages out.
My reasoning is this:
Fundamentally, the financial industry is about time, risk, and trust. The reason the industry exists is to shift productive capacity from individuals that are able to bear it now, to enterprises that may or may not pay off later, in a way that everybody who contributed to the success of an enterprise gets paid off later (when they need the funds) and gets to do it again. Currency is an information-carrying device that both lets you shift production from the consumer to the person best able to provide the service (medium of exchange) and records that a person provided valuable services at some point in the past so that they can claim services in the future (store of value). Stocks and bonds are both different ways of transferring money that people don't need now to people who can do useful things with it now, in a way that the investor can receive a payoff later. The banking system does the same, but with institutionalized, standardized practices. The insurance industry spreads risk from people who cannot bear it now across people who can; the futures & derivatives markets transfer that risk from firms who cannot bear it to firms who can.
When I look at the ICO boom of 2017, I saw the beginning of a functioning financial system. All the basic elements were in place - the ability to transfer value and claims of future value between participants, the ability for people with an excess of credit (assets) now to fund the development of projects that may pay off later, and the trust that if those projects were successful, they would benefit. It's all in a very rough form - the network got clogged such that it took ridiculous times for transaction confirmations, most of these projects continued to fail and end up worthless (I actually have hard data on this - roughly 90% of ICOs are either scams, failed, infeasible, or otherwise abandoned, while 10% are still going concerns 2 years later), there've been a bunch of hacks of exchanges and smart contracts, market manipulation is rampant, and cryptocurrency prices look like a roller coaster. Basically, we're making all the mistakes of 19th-century finance again: the crypto market looks a lot like the stock market did in the 1840s.
But we're doing it without needing any people involved in transactions. That's hugely powerful, in a world that software is eating. Finance is a $13T industry accounting for ~20% of world GDP and employing millions of incredibly high-paid people. In the sense of crypto being a cheap software-only competitor for extremely high-paid people, it's quite attractive.
And all of the problems that happened in 2017 are fixable. There are already lots of people working on the cryptocurrency scalability problem, between Bitcoin Lightning, Ethereum Casper, and new consensus algorithms like DPoS and SCP. People are working on the energy consumed by PoW, too - almost all new coins are proof-of-stake. Distributed exchanges like the 0x protocol remove the need to trust third-parties with your funds; you can keep them all in your own wallet. Continued bugfixes to Solidity shore up smart contract security. Stablecoins like MakerDAO and USDC remove the volatility of pricing in terms of crypto. Oracles provide a way to get more "facts" onto the blockchain so that smart contracts can rely on a disinterested third-party to make decisions on data. Each bubble distributes more crypto out of the hands of early-adopter whales (other than the Satoshi-coins, these account for less than 15% of total Bitcoin supply) and into the hands of ordinary people.
I think that governments if they acted now could shut down the fiat on-ramps to crypto, but I don't think they will. Too many people that use it for legitimate investment purposes, who will be very upset if they do. Government always tends to react a little too late to the social changes presented by new technology - we're only now seeing a backlash to the Internet, 30 years later, and at this point it's a little late to shut off the net even if certain governments are trying. Besides, if a technology makes the group of people who adopt it more efficient than the people who don't, the former will outcompete the latter. At some point, once people are directly selling goods for crypto and getting paid in it, it becomes too big to fail. I think that's a few years off (I expect crypto adoption to be slower than WWW adoption, because finance is more fundamental to society than communication is), but ultimately I think the ability to fund & partake in the benefits of new ventures without needing permission from Wall Street or Sand Hill Road will outweigh all the downsides of crypto.
My reasoning is this:
Fundamentally, the financial industry is about time, risk, and trust. The reason the industry exists is to shift productive capacity from individuals that are able to bear it now, to enterprises that may or may not pay off later, in a way that everybody who contributed to the success of an enterprise gets paid off later (when they need the funds) and gets to do it again. Currency is an information-carrying device that both lets you shift production from the consumer to the person best able to provide the service (medium of exchange) and records that a person provided valuable services at some point in the past so that they can claim services in the future (store of value). Stocks and bonds are both different ways of transferring money that people don't need now to people who can do useful things with it now, in a way that the investor can receive a payoff later. The banking system does the same, but with institutionalized, standardized practices. The insurance industry spreads risk from people who cannot bear it now across people who can; the futures & derivatives markets transfer that risk from firms who cannot bear it to firms who can.
When I look at the ICO boom of 2017, I saw the beginning of a functioning financial system. All the basic elements were in place - the ability to transfer value and claims of future value between participants, the ability for people with an excess of credit (assets) now to fund the development of projects that may pay off later, and the trust that if those projects were successful, they would benefit. It's all in a very rough form - the network got clogged such that it took ridiculous times for transaction confirmations, most of these projects continued to fail and end up worthless (I actually have hard data on this - roughly 90% of ICOs are either scams, failed, infeasible, or otherwise abandoned, while 10% are still going concerns 2 years later), there've been a bunch of hacks of exchanges and smart contracts, market manipulation is rampant, and cryptocurrency prices look like a roller coaster. Basically, we're making all the mistakes of 19th-century finance again: the crypto market looks a lot like the stock market did in the 1840s.
But we're doing it without needing any people involved in transactions. That's hugely powerful, in a world that software is eating. Finance is a $13T industry accounting for ~20% of world GDP and employing millions of incredibly high-paid people. In the sense of crypto being a cheap software-only competitor for extremely high-paid people, it's quite attractive.
And all of the problems that happened in 2017 are fixable. There are already lots of people working on the cryptocurrency scalability problem, between Bitcoin Lightning, Ethereum Casper, and new consensus algorithms like DPoS and SCP. People are working on the energy consumed by PoW, too - almost all new coins are proof-of-stake. Distributed exchanges like the 0x protocol remove the need to trust third-parties with your funds; you can keep them all in your own wallet. Continued bugfixes to Solidity shore up smart contract security. Stablecoins like MakerDAO and USDC remove the volatility of pricing in terms of crypto. Oracles provide a way to get more "facts" onto the blockchain so that smart contracts can rely on a disinterested third-party to make decisions on data. Each bubble distributes more crypto out of the hands of early-adopter whales (other than the Satoshi-coins, these account for less than 15% of total Bitcoin supply) and into the hands of ordinary people.
I think that governments if they acted now could shut down the fiat on-ramps to crypto, but I don't think they will. Too many people that use it for legitimate investment purposes, who will be very upset if they do. Government always tends to react a little too late to the social changes presented by new technology - we're only now seeing a backlash to the Internet, 30 years later, and at this point it's a little late to shut off the net even if certain governments are trying. Besides, if a technology makes the group of people who adopt it more efficient than the people who don't, the former will outcompete the latter. At some point, once people are directly selling goods for crypto and getting paid in it, it becomes too big to fail. I think that's a few years off (I expect crypto adoption to be slower than WWW adoption, because finance is more fundamental to society than communication is), but ultimately I think the ability to fund & partake in the benefits of new ventures without needing permission from Wall Street or Sand Hill Road will outweigh all the downsides of crypto.
But there's a difference between a public ICO and a public IPO: the ICO doesn't require transparency of the account, doesn't give legal ownership of the company's capital shares, and doesn't give a formal right of voting on classical issues, like electing a board member.
The ICO is a way to raise money out of chumps without giving anything in exchange, but it's not more efficient, faster or better in any way than an IPO. It's just shadier.
The ICO is a way to raise money out of chumps without giving anything in exchange, but it's not more efficient, faster or better in any way than an IPO. It's just shadier.
The value proposition for the investor in an ICO is that if the currency sees adoption for real transactions, its value will rise. The value of a currency is fundamentally determined by supply (total units in circulation) and demand (what you can buy with it). If you start being able to buy more things with it, and supply remains constant, the value of the currency rises. This is why the Fed is constantly injecting money into the economy: economic growth means that you can buy more things with a dollar, which means that if the money supply remained constant (as it did under the gold standard of the late 1800s), the value of the dollar would continually increase and prices would continually decrease.
With an ICO, you lock up some of that money supply in speculators' wallets, in exchange for the initial capital infusion. As the normal use-value price of the currency rises, they will sell and take their profits, injecting money back into the economy.
The wrinkles right now are that a.) nobody really knows how to value a currency with few-to-zero users and b.) a lot of these projects didn't deliver. That meant that a number of people lost their shirt in 2017 (actually, I suspect that number is less than commonly reported: I think most ICO investors were early Bitcoin and Ethereum hodlers who had already cashed out their initial investment into the bubble and then had some play money to diversify). But if you can pick winners now, when all the initial hype has disappeared, you stand to make a fair bit as people start using these platforms for real commerce.
With an ICO, you lock up some of that money supply in speculators' wallets, in exchange for the initial capital infusion. As the normal use-value price of the currency rises, they will sell and take their profits, injecting money back into the economy.
The wrinkles right now are that a.) nobody really knows how to value a currency with few-to-zero users and b.) a lot of these projects didn't deliver. That meant that a number of people lost their shirt in 2017 (actually, I suspect that number is less than commonly reported: I think most ICO investors were early Bitcoin and Ethereum hodlers who had already cashed out their initial investment into the bubble and then had some play money to diversify). But if you can pick winners now, when all the initial hype has disappeared, you stand to make a fair bit as people start using these platforms for real commerce.
I read your thinking as being centered around transaction costs, is that right? That cryptocurrencies can lower the transaction costs associated with the funding of productive endeavors.
This seems right to me. We can avoid things like accredited investor status and allow small amounts of capital to be invested without needing much legal overhead. And (for better or worse), ventures funded this way will also have a market price and never be private in the sense of today.
Of course, ICOs or whatever they morph into will need to be much more like securities than they were 2 years ago. Investing without actual equity makes little sense to me. To make these more reasonable, companies will need to know they aren't breaking securities laws when they issue. Once they know that, the ICOs can look less insane.
I buy the transaction cost argument in this sense. But I think there might be too many other issues for this to come about. Though I'm currently not confident enough in bill or bear status to bet either way.
Let's grant that scaling can be solved and volatility will not remain incredible like today. I think there are maybe deeper issues.
There's a lot of emphasis on 3rd party risk mitigation in the crypto world. But this new world reopens more 2nd party risk than it minimizes 3rd party risk to my first approximation.
Governments exist as dispute resolvers and preventers (military/police and laws/rules being the functions a government must have to be a government). They protect citizens from outside threats, but much more often from each other. In crypto, the permanence of a transaction is a primitive. But this makes scamming and various forms of theft even more attractive. People like the comfortable feeling of a government protecting them from financial fraud. If cryptocurrencies became the main currencies, I think they won't be able to look as loose and free as they do today. Even ignoring the funding of criminal activity, people want a way to reverse bad faith transactions. They'll demand oversight I think.
It's hard for me to imagine the hypothetical end state crypto financial world being anywhere near as libertarian-feeling as today's cryptocurrencies. Digital money is a government's dream. A government issued or one in which governments have a back door allows perfect monitoring of transactions and monetary policy controls.
The whole thing just seems too early to be predictable or investable to me. It's just for momentum trading today in my current view.
Though this is an idea space that forces me to change my mind back and forth. It's too complex to remain a settled, comfortable member of the landscape.
This seems right to me. We can avoid things like accredited investor status and allow small amounts of capital to be invested without needing much legal overhead. And (for better or worse), ventures funded this way will also have a market price and never be private in the sense of today.
Of course, ICOs or whatever they morph into will need to be much more like securities than they were 2 years ago. Investing without actual equity makes little sense to me. To make these more reasonable, companies will need to know they aren't breaking securities laws when they issue. Once they know that, the ICOs can look less insane.
I buy the transaction cost argument in this sense. But I think there might be too many other issues for this to come about. Though I'm currently not confident enough in bill or bear status to bet either way.
Let's grant that scaling can be solved and volatility will not remain incredible like today. I think there are maybe deeper issues.
There's a lot of emphasis on 3rd party risk mitigation in the crypto world. But this new world reopens more 2nd party risk than it minimizes 3rd party risk to my first approximation.
Governments exist as dispute resolvers and preventers (military/police and laws/rules being the functions a government must have to be a government). They protect citizens from outside threats, but much more often from each other. In crypto, the permanence of a transaction is a primitive. But this makes scamming and various forms of theft even more attractive. People like the comfortable feeling of a government protecting them from financial fraud. If cryptocurrencies became the main currencies, I think they won't be able to look as loose and free as they do today. Even ignoring the funding of criminal activity, people want a way to reverse bad faith transactions. They'll demand oversight I think.
It's hard for me to imagine the hypothetical end state crypto financial world being anywhere near as libertarian-feeling as today's cryptocurrencies. Digital money is a government's dream. A government issued or one in which governments have a back door allows perfect monitoring of transactions and monetary policy controls.
The whole thing just seems too early to be predictable or investable to me. It's just for momentum trading today in my current view.
Though this is an idea space that forces me to change my mind back and forth. It's too complex to remain a settled, comfortable member of the landscape.
I am not sure if this is a legitimate argument because you can apply the same logic to Uber and Tesla.
Uber and Tesla sold traditional securities to accredited investors, the same way that everyone else normally does.
Except that they confirmed to laws and SEC regs and Kik didn't? That makes all the difference...
Uber "conformed to laws" is rich considering HN commentary on that company over the last 8 years...
(To be fair, the SEC is pretty much the one government agency that Uber did not piss off - it's just the IRS, FBI, DoJ, and almost every local government in America that they're in trouble with.)
(To be fair, the SEC is pretty much the one government agency that Uber did not piss off - it's just the IRS, FBI, DoJ, and almost every local government in America that they're in trouble with.)
Uber deserves to be burned to the ground just for the legal shenanigans it played, but if in this case they were above the board, then it's fair to say so.
It's not rich when we talk about the SEC here. Uber conformed to laws of the SEC. The other agencies are irrelevant to that discussion.
[deleted]
Weren't they selling tokens that could be used to send messages on the service they were creating?
That doesn't really sound like a security to me...
That doesn't really sound like a security to me...
Well a messenger app for 8 years, but that's not really what the lawsuit is about.
They want to add payments to their messenger app. That's a known business model and a hot area right now - WeChat pioneered it, Line does it too, and Facebook is working on a cryptocurrency-based solution that does the same thing.
The rewards could be huge if payments via messaging apps takes off in the west. It's really too bad WhatsApp sold to Facebook of all places.
We could have a privacy-oriented chat platform with a cryptocurrency "small cash" type of transaction system built on top. Combined with some informal craigslist style mini-stores, which flourished in China via Wechat.
I'm sure FB/WhatsApp could do it via normal payment channels, probably involving Visa/Mastercard. But the privacy story is awful for such a critical piece of software. Assuming they could pull it off. Maybe Kik could take up the privacy flag?
WSJ made a nice video of how Chinese people live "cashless" via WeChat in Shenzen: https://www.youtube.com/watch?v=75AXINUL47g
We could have a privacy-oriented chat platform with a cryptocurrency "small cash" type of transaction system built on top. Combined with some informal craigslist style mini-stores, which flourished in China via Wechat.
I'm sure FB/WhatsApp could do it via normal payment channels, probably involving Visa/Mastercard. But the privacy story is awful for such a critical piece of software. Assuming they could pull it off. Maybe Kik could take up the privacy flag?
WSJ made a nice video of how Chinese people live "cashless" via WeChat in Shenzen: https://www.youtube.com/watch?v=75AXINUL47g
Don't know enough about crypto, but whats the benefit of a payment system for messenger apps to run on crypto at all? If you're transacting through a centralized messaging platform doesnt that defeat the purpose of a decentralized currency or ledger?
It would open up ways to get money into and out of your chat app with less friction.
Also saves you from the "How do I know you won't run off with the money?" and "What happens if Kik goes out of business?" questions. The value of a blockchain is that your digital tokens exist independently of the sponsoring organization, so the sponsoring organization cannot just alter or shutdown their database to make your funds go poof.
Granted, if Kik went bust tomorrow those tokens would most likely have no value, since their use is tied to Kik's messenger app. But in theory you would still own the tokens and could transfer them to anyone who would accept them.
Granted, if Kik went bust tomorrow those tokens would most likely have no value, since their use is tied to Kik's messenger app. But in theory you would still own the tokens and could transfer them to anyone who would accept them.
That's only true in the case where the underlying cyptocurrency is actually accepted outside the platform. In theory, if your app is transacting money, it keeps the equivalent cash in an insured bank account which is exactly how PayPal and similar work. If it's not widely accepted, it's basically the same as in-game tokens/currency. Speaking of in-game tokens, people have used them for the same purpose of cryptocurrency e.g. capital flight and money laundering.
"Maybe Kik could take up the privacy flag?"
I feel like most services that aim to replace another one ... just want that information for their own purposes, not the customer's benefit.
I feel like most services that aim to replace another one ... just want that information for their own purposes, not the customer's benefit.
If you think the WhatsApp situation is sad, start thinking about Skype and Paypal.
Theoretically this could be possible now with existing cryotos by making small wallets for micro transactions. The chat app would just need to link your blockchain address to make it easily copy and paste-able
there is no way Whatsapp would be allowed to use a privacy oriented crypto.
All payment are under surveillance, except cash.
true, but their primary user base is teens that barely have a credit card.
FBMessenger already has best in class payments built in, without crypto.
If that was the case Kik wouldn’t have spent an alleged $5M unsuccessfully trying to settle this matter.
No most people don’t raise a $100M in violation of securities law...or even “testing” security laws, especially when Kik could have obtained the SECs opinion through a No Action Letter request.
Why didn’t Kik avail themselves to the law and process before raising $100M from the public?
No most people don’t raise a $100M in violation of securities law...or even “testing” security laws, especially when Kik could have obtained the SECs opinion through a No Action Letter request.
Why didn’t Kik avail themselves to the law and process before raising $100M from the public?
<Remember Bitcoin came out in 2009>
Patrick Gibbs:
> First of all, you have to consider the SEC’s normal process for that sort of thing. It is very difficult and it takes a very, very, very long time for the SEC to give that kind of forward-looking advice, usually in the form of a no action letter. I mean, here we are in 2019 and they have only just recently released what I think is the very first no action letter relating to a cryptocurrency and that matter has been pending for well over a year.
> So it’s not practicable in a business that’s moving as quickly as this business was in 2016, 2017, to go and ask the SEC for a no action letter like that because the process just takes too long, and in a situation where in our view it’s quite clear that what we were doing is outside the scope of the SEC’s authority, we don’t generally think we have to go and ask the SEC’s permission to engage in business activity that is outside the scope of their authority.
https://unchainedpodcast.com/kin-sets-up-5-million-defendcry...
Patrick Gibbs:
> First of all, you have to consider the SEC’s normal process for that sort of thing. It is very difficult and it takes a very, very, very long time for the SEC to give that kind of forward-looking advice, usually in the form of a no action letter. I mean, here we are in 2019 and they have only just recently released what I think is the very first no action letter relating to a cryptocurrency and that matter has been pending for well over a year.
> So it’s not practicable in a business that’s moving as quickly as this business was in 2016, 2017, to go and ask the SEC for a no action letter like that because the process just takes too long, and in a situation where in our view it’s quite clear that what we were doing is outside the scope of the SEC’s authority, we don’t generally think we have to go and ask the SEC’s permission to engage in business activity that is outside the scope of their authority.
https://unchainedpodcast.com/kin-sets-up-5-million-defendcry...
> So it’s not practicable in a business that’s moving as quickly as this business was in 2016, 2017, to go and ask the SEC for a no action letter like that because the process just takes too long...
I empathize with what Mr. Gibbs is saying, and—if he speaks the truth—feeling, but it was Kik's choice to run a "quickly moving business" in a highly regulated arena.
People make the same arguments about security/privacy ("too much of a hassle in a quickly moving startup"), safety ("we can't afford to put two people in this test vehicle for autonomous driving") and so forth.
Kik might be right in this specific case, but in general "We're moving too quickly to deal with red tape" is not an argument.
I empathize with what Mr. Gibbs is saying, and—if he speaks the truth—feeling, but it was Kik's choice to run a "quickly moving business" in a highly regulated arena.
People make the same arguments about security/privacy ("too much of a hassle in a quickly moving startup"), safety ("we can't afford to put two people in this test vehicle for autonomous driving") and so forth.
Kik might be right in this specific case, but in general "We're moving too quickly to deal with red tape" is not an argument.
>Patrick Gibbs:
First your citing the Cooley attorney who advised the company...of course he is going to justify his own legal advice.
It’s not going to look good when the court determines Kik knew if could have sought clarification from the SEC but didnt Because the SEC no Action Letter process wasn’t practical.
Let’s also keep in mind Cooley is the Firm that developed the SAFT (security agreement for future tokens) released their SAFT whitepaper into the wild telling startups to use their SAFT legal framework to raise money with ICOs legally and these are some of the first companies the SEC targeted for enforcement actions.
First your citing the Cooley attorney who advised the company...of course he is going to justify his own legal advice.
It’s not going to look good when the court determines Kik knew if could have sought clarification from the SEC but didnt Because the SEC no Action Letter process wasn’t practical.
Let’s also keep in mind Cooley is the Firm that developed the SAFT (security agreement for future tokens) released their SAFT whitepaper into the wild telling startups to use their SAFT legal framework to raise money with ICOs legally and these are some of the first companies the SEC targeted for enforcement actions.
>Let’s also keep in mind Cooley is the Firm that developed the SAFT (security agreement for future tokens) released their SAFT whitepaper into the wild telling startups to use their SAFT legal framework to raise money with ICOs legally and these are some of the first companies the SEC targeted for enforcement actions.
They threw out some free legal advice and people used it?
I guess you get what you pay for.
I remember the story of the startup executive who thought he maybe got odd advice from his CFO about stock options but was assured that "this is how it is done". He went and asked a local attorney effectively "I don't see how this could be legal."
So they didn't do it, little while later his CFO had to resign, because they were going to jail for doing the same stock option (basically massive back dating) plan at another company.
Bullet dodged!
They threw out some free legal advice and people used it?
I guess you get what you pay for.
I remember the story of the startup executive who thought he maybe got odd advice from his CFO about stock options but was assured that "this is how it is done". He went and asked a local attorney effectively "I don't see how this could be legal."
So they didn't do it, little while later his CFO had to resign, because they were going to jail for doing the same stock option (basically massive back dating) plan at another company.
Bullet dodged!
>I remember the story of the startup executive...
For anyone curious, I think the parent poster is thinking of Ben Horowitz: https://a16z.com/2014/02/06/why-i-did-not-go-to-jail/
For anyone curious, I think the parent poster is thinking of Ben Horowitz: https://a16z.com/2014/02/06/why-i-did-not-go-to-jail/
Well Cooley’s free SAFT legal framework ended up with startups facing SEC enforcement actions.
>I guess you get what you pay for.
Then again, Kik, Cooley’s paying client also ended up in an SEC enforcement action (they claim they already spent $5M in legal fee prior to the SEC bringing the case).
I’m not so sure the issue is how much the clients paid for Cooley’s advice so much as the advice itself.
>I guess you get what you pay for.
Then again, Kik, Cooley’s paying client also ended up in an SEC enforcement action (they claim they already spent $5M in legal fee prior to the SEC bringing the case).
I’m not so sure the issue is how much the clients paid for Cooley’s advice so much as the advice itself.
Hey... I'm not citing. I'm not even arguing. I'm quoting their answer to your question.
Supposedly Kik did seek clarification from the SEC and didn't get any. Then they received an enforcement action which is supposed to include details about the problems involved and the actions to be taken, but it contained none of those. Since then, they have been working for a year to get any kind of detail from the SEC, and the SEC has declined.
Personally, I think the root problem is that it seems the SEC is wildly under-funded and over-loaded. If a politician ran on a platform of election & campaign-finance reform + fund up the IRS & SEC; you couldn't call me a single-issue voter, but maybe a "2-issue voter" in that dream scenario.
Supposedly Kik did seek clarification from the SEC and didn't get any. Then they received an enforcement action which is supposed to include details about the problems involved and the actions to be taken, but it contained none of those. Since then, they have been working for a year to get any kind of detail from the SEC, and the SEC has declined.
Personally, I think the root problem is that it seems the SEC is wildly under-funded and over-loaded. If a politician ran on a platform of election & campaign-finance reform + fund up the IRS & SEC; you couldn't call me a single-issue voter, but maybe a "2-issue voter" in that dream scenario.
I don't buy this argument from Kik for a second. The SEC might not always get back to you immediately but they sure as shit aren't going to lob charges your way when you're in the middle of working with them. In my experience they're very reasonable and willing to hear you out _so_long_as_ you're respectful, patient, and open to reaching a compromise.
In my experience, the SEC is one of the most reasonable and competent government agency.
A very, very long time. There's also the fact that they know very, very well what the general advice from the SEC about selling "tokens" to "investors" will be. (Their words, not mine.)
Here is the deal though, the SEC employs administrative law judges (ALJs) who even the President cannot remove and generally are immune electoral control and accountability
The SEC also enforces gag orders on settlements to hide the proceedings and discovery from the public which only allows them to continue their abuses of the system.
A common thread among SEC settlements, also in CFTC and CTFB settlements is summed up from a recent SEC agreement
"mak[ing] any public statement denying, directly or indirectly, any allegation in the [SEC’s] complaint or creating the impression that the complaint is without factual basis"
So basically you have no recourse against government agencies whose quasi legal status pretty much makes them immune to the checks and balances as specified in courts. If you want a closer to home comparison, FISA courts operate pretty much the same way. There is no disclosure other than what the government wants you to know and they have the full resources of the US government to take you down, the common tactic is to bankrupt individuals or threaten it to get the deals they want.
The SEC also enforces gag orders on settlements to hide the proceedings and discovery from the public which only allows them to continue their abuses of the system.
A common thread among SEC settlements, also in CFTC and CTFB settlements is summed up from a recent SEC agreement
"mak[ing] any public statement denying, directly or indirectly, any allegation in the [SEC’s] complaint or creating the impression that the complaint is without factual basis"
So basically you have no recourse against government agencies whose quasi legal status pretty much makes them immune to the checks and balances as specified in courts. If you want a closer to home comparison, FISA courts operate pretty much the same way. There is no disclosure other than what the government wants you to know and they have the full resources of the US government to take you down, the common tactic is to bankrupt individuals or threaten it to get the deals they want.
Huh? Most SEC settlements are public. The SEC issues a press release. Here's a typical one.[1]
As for settlements with the terms "mak[ing] any public statement denying, directly or indirectly, any allegation in the [SEC’s] complaint or creating the impression that the complaint is without factual basis", that's what pleading guilty looks like in a civil enforcement matter. You can't say "yes, we did it, and we'll pay the penalty rather than going to trial" to the SEC, and then turn around and say publicly "we didn't do it".
As for settlements with the terms "mak[ing] any public statement denying, directly or indirectly, any allegation in the [SEC’s] complaint or creating the impression that the complaint is without factual basis", that's what pleading guilty looks like in a civil enforcement matter. You can't say "yes, we did it, and we'll pay the penalty rather than going to trial" to the SEC, and then turn around and say publicly "we didn't do it".
You can always appeal an ALJ order to federal court where it is reviewed de novo.
This isn't anything like FISA.... that is a bizarre comparison.
In my opinion it’s a bit like hearing the accused proclaim their innocence. My response is always “well yeah, everyone declares that they’re innocent”.
For those who didn't know (like me): The Howey Test determines that a transaction represents an investment contract if "a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party,"
https://www.investopedia.com/terms/h/howey-test.asp
https://www.investopedia.com/terms/h/howey-test.asp
The major issue with Howey has always been that it doesn't account for situations where investors are investing for some benefit other than profit from appreciation or dividends. Howey is particularly difficult to apply when that "other benefit" is personal consumption or when investors are investing for a combination of profit and "other benefit" as is the case with Kin.
For example, what if Mr. Howey had purchased the orange grove expecting to eat 10% of the oranges and leave the remaining 90% subject to the leaseback agreement originally at issue. Is the orange grove agreement still an "investment contract" if Mr. Howey eats 10%? What if he eats 50%? 90%?
What if Mr. Howey planned to sell all of the oranges when the market price was over $X per pound and eat any oranges when the market price was below that amount?
That's the Howey grey area in which Kin is operating. Many people likely purchased small amounts of Kin with the expectation that they might use some of it for in-app purchases and hold some anticipating a profit from it appreciating in value.
Other cases that have been litigated in the wake of Howey that you might find interesting, though not necessarily helpful in applying Howey to cryptocurrency:
- United Housing Foundation v Forman[1] (1975) where "stock" issued by a housing corporation that provided a reduction in rent was _not_ an investment contract (or security at all).
- SEC v Edwards[2] (2004) where a fixed-rate leaseback agreement for payphones _was_ a security.
- SEC v Lauer[3] (1994) where the court was... flexible in their interpretation of the Howey test, finding a "common enterprise" existed where there was only one investor.
The Lauer opinion was particularly important for demonstrating that courts look to the "economic reality of the transaction" when determining whether something is or isn't a security.
[1] https://supreme.justia.com/cases/federal/us/421/837/
[2] https://www.casebriefs.com/blog/law/securities-regulation/se...
[3] https://www.courtlistener.com/opinion/1459162/ussec-v-lauer/
For example, what if Mr. Howey had purchased the orange grove expecting to eat 10% of the oranges and leave the remaining 90% subject to the leaseback agreement originally at issue. Is the orange grove agreement still an "investment contract" if Mr. Howey eats 10%? What if he eats 50%? 90%?
What if Mr. Howey planned to sell all of the oranges when the market price was over $X per pound and eat any oranges when the market price was below that amount?
That's the Howey grey area in which Kin is operating. Many people likely purchased small amounts of Kin with the expectation that they might use some of it for in-app purchases and hold some anticipating a profit from it appreciating in value.
Other cases that have been litigated in the wake of Howey that you might find interesting, though not necessarily helpful in applying Howey to cryptocurrency:
- United Housing Foundation v Forman[1] (1975) where "stock" issued by a housing corporation that provided a reduction in rent was _not_ an investment contract (or security at all).
- SEC v Edwards[2] (2004) where a fixed-rate leaseback agreement for payphones _was_ a security.
- SEC v Lauer[3] (1994) where the court was... flexible in their interpretation of the Howey test, finding a "common enterprise" existed where there was only one investor.
The Lauer opinion was particularly important for demonstrating that courts look to the "economic reality of the transaction" when determining whether something is or isn't a security.
[1] https://supreme.justia.com/cases/federal/us/421/837/
[2] https://www.casebriefs.com/blog/law/securities-regulation/se...
[3] https://www.courtlistener.com/opinion/1459162/ussec-v-lauer/
100% agree on this assessment and the difficulty of applying securities law. The application of the Howey test is so open for debate that it becomes uncomfortably subjective. See my comment here: https://news.ycombinator.com/item?id=20101984
Even if tokens aren’t a security (and although I understand both sides of the debate it’s my professional opinion that they are) they are most certainly a commodity. So the battle over jurisdiction is really between the SEC and the CFTC, not between the SEC and no oversight at all.
Interestingly, most of the points you raised (financing innovation, alternative to VCs, etc.) would put tokens such as Kin squarely in the “securities” bucket instead of the “commodities” bucket.
Regulation is coming for cryptocurrency and regulation is needed for cryptocurrency. And the industry would be far better served by working with their future regulators to establish reasonable guidelines rather than fighting them in court.
Interestingly, most of the points you raised (financing innovation, alternative to VCs, etc.) would put tokens such as Kin squarely in the “securities” bucket instead of the “commodities” bucket.
Regulation is coming for cryptocurrency and regulation is needed for cryptocurrency. And the industry would be far better served by working with their future regulators to establish reasonable guidelines rather than fighting them in court.
While I look forward to the outcome of this, it's worth noting that the SEC has claimed that "airdrops", or simply giving away tokens to others for free, should also be considered securities, as well as "pre-mines", where you mine cryptocurrency before the public receives it. The SEC has an ever expanding view of what it should be responsible for regulating. I cannot understand how issuing a digital asset without receiving any money could fail the Howey Test.
The continuous pump-and-dump activity that you see in the crypto space is a clear demonstration that they should be regulated by the SEC.
Regulation is unpopular among the people inside the regulated industry, but it protects society as a whole.
Regulation is unpopular among the people inside the regulated industry, but it protects society as a whole.
It's often the other way around: regulation is popular among people inside the regulated industry (it keeps competitors out, while being treated as "just business as normal" by employees of the regulated industry), while being unpopular with potential new entrants on the outside.
The only industries that really fight regulation are those where there's currently a mad scramble of new startups trying to gain position (see eg. dot-coms in 1999 or crypto in 2019). Nurses don't fight HIPAA, bankers don't fight margin requirements, contractors don't fight building codes, brokers don't fight broker licensing, and daycares don't fight safety standards.
The only industries that really fight regulation are those where there's currently a mad scramble of new startups trying to gain position (see eg. dot-coms in 1999 or crypto in 2019). Nurses don't fight HIPAA, bankers don't fight margin requirements, contractors don't fight building codes, brokers don't fight broker licensing, and daycares don't fight safety standards.
Banks lobby against regulation that would protect the consumer, make pricing more transparent and generally hurt banks' bottom line.
https://www.huffpost.com/entry/auction-2012-banks-lobby-wash...
Corporate lobbying has not been that strong in EU, where SEPA wire transfers are fee and merchant card fees reasonable capped. And now as the latest PSD2 directive the banks must give you an API access to your own bank account.
https://www.huffpost.com/entry/auction-2012-banks-lobby-wash...
Corporate lobbying has not been that strong in EU, where SEPA wire transfers are fee and merchant card fees reasonable capped. And now as the latest PSD2 directive the banks must give you an API access to your own bank account.
Banks are a special case. Much of the modern banking system would be considered fraud 100 years ago, but banks were among the first to figure out that they can put pretty much anything into a financial contract and it will be binding.
The US literally created the FDIC because banks are allowed to gamble with depositor's money.
The US literally created the FDIC because banks are allowed to gamble with depositor's money.
Nurses aren't regulated by HIPAA, hospitals and medical device companies are and they fight HIPAA all the time. Bankers don't deal with margin requirements...you're thinking of investors. Contractors don't fight building codes because they just work for others, but developers (that hire the contractors) do, as do realtors. Brokers do fight broker licensing all the time, because it restricts what they can profitably sell.
Really, the only example you provided that was correct was that daycares don't fight the safety standards imbued into the day care licensing requirements. (Yes, daycare is a licensed business in most states.)
Generally, regulation is not popular amongst the regulated industry. However, the lack of regulation is far less popular than the fear of unregulated competition in some markets where "startups" try to "disrupt" the status quo by imposing externalities on society rather than absorbing them internally as they would if they adhered to regulations.
Really, the only example you provided that was correct was that daycares don't fight the safety standards imbued into the day care licensing requirements. (Yes, daycare is a licensed business in most states.)
Generally, regulation is not popular amongst the regulated industry. However, the lack of regulation is far less popular than the fear of unregulated competition in some markets where "startups" try to "disrupt" the status quo by imposing externalities on society rather than absorbing them internally as they would if they adhered to regulations.
This isn't really the point, but nurses are regulated by HIPAA. Everyone who touches patient data is personally liable for the safety of that data and may face civil and/or criminal penalties if a breach occurs.
No, if you're going to make a silly argument you need to be aware that nurses are regulated by their licensing boards.
The HIPAA regulation is literally just a regulation that minimally impacts their handling of patient data, not their professional practice. Their responsibility is literally to follow the data-protection policies set forth by the facilities they work for.
Technically I was once regulated by HIPAA as well...when working for healthcare clients, with respect to patient data.
The HIPAA regulation is literally just a regulation that minimally impacts their handling of patient data, not their professional practice. Their responsibility is literally to follow the data-protection policies set forth by the facilities they work for.
Technically I was once regulated by HIPAA as well...when working for healthcare clients, with respect to patient data.
>but it protects society as a whole.
Regulations may be a net positive overall but there are plenty of examples of bad regulation. The general case does not necessarily apply to any one case and even if it does there's still plenty of room to screw up the implementation. You can't just hand wave and say "well regulation is generally good so therefore this specific regulation must also be good". That's the same flawed logic as using demographic statistics as if they apply to individuals.
I can't believe I'm defending crypto here.
Regulations may be a net positive overall but there are plenty of examples of bad regulation. The general case does not necessarily apply to any one case and even if it does there's still plenty of room to screw up the implementation. You can't just hand wave and say "well regulation is generally good so therefore this specific regulation must also be good". That's the same flawed logic as using demographic statistics as if they apply to individuals.
I can't believe I'm defending crypto here.
Not the op, but: it's not that every piece of regulation is great, but regulation as a whole protects society as a whole
You're giving away a security that is still considered a security. That doesn't mean it won't be regulated as a security.
First clause of the Howey Test is that there's an investment of money. Perhaps at some point the SEC lawyers will argue to a court that something can still be a security without an investment of money, but I don't think there's any particular reason to think a court will agree.
You're conflating the definition of a "security" under the Securities Act with the definition of an "investment contract" (undefined in the Securities Act and defined by the court in Howey).
An "investment contract" is just one of many things that fall within the definition of "security":
> The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
Source: https://www.law.cornell.edu/uscode/text/15/77b
An "investment contract" is just one of many things that fall within the definition of "security":
> The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
Source: https://www.law.cornell.edu/uscode/text/15/77b
Can you give an example of something that fails the Howey test, but is required to follow the SEC regulations that govern ICOs?
A few things to clarify:
The SEC's position is that tokens are "securities" under the Securities Act and the Securities Act says that all securities must be registered if they're going to be sold to the public. Since the SEC views the tokens as securities (no different from company stock), and securities must be registered to be sold to the public, then (according to the SEC) an ICO of an unregistered token violates securities regulations.
To that end, the SEC hasn't issued "regulations that govern ICOs" they've issued guidance as to how the _existing_ securities regulations apply to tokens and ICOs. The rules haven't changed, the SEC has just attempted to make it clear that the rules do apply even though they haven't necessarily been enforced.
That guidance has come in the form of a statement for ICO issuers[1], a 'Framework for "Investment Contract" Analysis of Digital Assets'[2], and a statement on cryptocurrencies and ICOs[3]. All three include language along the lines of:
> This framework represents Staff views and is not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved its content. This framework, like other Staff guidance, is not binding on the Divisions or the Commission.
As I mentioned in my comment above, the definition of "security" includes a lot of situations. The Howey test only applies to _one_ of those situations: investment contracts. Since "investment contracts" are a type of "security" an investment contract is subject to all of the same rules and regulations as any other security.
Investment contracts are sort of the catch all category in the definition of "security" and why you'll often hear the term come up with respect to cryptocurrency because cryptocurrency is not specifically included in the statutory definition of "security."
Many types of securities fail the Howey test because they aren't "investment contracts" but they are still a "security" and still subject to the same regulations.
For example, employee stock options fail the Howey test because they aren't "an investment of money" and because profits aren't expected "solely from the efforts of a third party." But the Howey test would never be applied to employee stock options because we know "options" and "stock" and "profit-sharing agreement" are all specifically included in the definition of "security." So it doesn't really matter whether employee stock options are an investment contract - they're still subject to the same regulations.
[1] https://www.sec.gov/news/public-statement/statement-framewor...
[2] https://www.sec.gov/files/dlt-framework.pdf
[3] https://www.sec.gov/news/public-statement/statement-clayton-...
The SEC's position is that tokens are "securities" under the Securities Act and the Securities Act says that all securities must be registered if they're going to be sold to the public. Since the SEC views the tokens as securities (no different from company stock), and securities must be registered to be sold to the public, then (according to the SEC) an ICO of an unregistered token violates securities regulations.
To that end, the SEC hasn't issued "regulations that govern ICOs" they've issued guidance as to how the _existing_ securities regulations apply to tokens and ICOs. The rules haven't changed, the SEC has just attempted to make it clear that the rules do apply even though they haven't necessarily been enforced.
That guidance has come in the form of a statement for ICO issuers[1], a 'Framework for "Investment Contract" Analysis of Digital Assets'[2], and a statement on cryptocurrencies and ICOs[3]. All three include language along the lines of:
> This framework represents Staff views and is not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved its content. This framework, like other Staff guidance, is not binding on the Divisions or the Commission.
As I mentioned in my comment above, the definition of "security" includes a lot of situations. The Howey test only applies to _one_ of those situations: investment contracts. Since "investment contracts" are a type of "security" an investment contract is subject to all of the same rules and regulations as any other security.
Investment contracts are sort of the catch all category in the definition of "security" and why you'll often hear the term come up with respect to cryptocurrency because cryptocurrency is not specifically included in the statutory definition of "security."
Many types of securities fail the Howey test because they aren't "investment contracts" but they are still a "security" and still subject to the same regulations.
For example, employee stock options fail the Howey test because they aren't "an investment of money" and because profits aren't expected "solely from the efforts of a third party." But the Howey test would never be applied to employee stock options because we know "options" and "stock" and "profit-sharing agreement" are all specifically included in the definition of "security." So it doesn't really matter whether employee stock options are an investment contract - they're still subject to the same regulations.
[1] https://www.sec.gov/news/public-statement/statement-framewor...
[2] https://www.sec.gov/files/dlt-framework.pdf
[3] https://www.sec.gov/news/public-statement/statement-clayton-...
Thanks. So since cryptocurrencies aren't specifically listed but just fall under "investment contracts," and investment contracts have to pass Howey to be considered securities, doesn't that mean that cryptocurrencies which fail a Howey test are in the clear?
(I guess the SEC could claim they count as "any interest or instrument commonly known as a security" on the grounds that the SEC themselves consider them securities, but that seems a stretch. I don't know why the courts would have bothered making the Howey test if they just wanted the SEC to rule however it liked.)
(I guess the SEC could claim they count as "any interest or instrument commonly known as a security" on the grounds that the SEC themselves consider them securities, but that seems a stretch. I don't know why the courts would have bothered making the Howey test if they just wanted the SEC to rule however it liked.)
> doesn't that mean that cryptocurrencies which fail a Howey test are in the clear?
Correct. Though I get the impression you think most tokens fail Howey and I’m not sure that’s the case. In SEC v Lauer the court found a “common enterprise” where there was only one investor so the court’s application of the Howey test isn’t cut and dry but there’s an expectation the court will apply it to the specific circumstances at issue.
Correct. Though I get the impression you think most tokens fail Howey and I’m not sure that’s the case. In SEC v Lauer the court found a “common enterprise” where there was only one investor so the court’s application of the Howey test isn’t cut and dry but there’s an expectation the court will apply it to the specific circumstances at issue.
I think it won't be such a cut-and-dry case to say that a token, given for free, without any promises of dividends or equity, run on a decentralized network, is a straightforward security which should be registered and regulated by the SEC. The Kik case may be a security but other cryptos are nowhere near as clear.
Yes but I suppose that’s the risk Kik is taking for the entire industry whether the rest of crypto is ready or not. A bunch of judges who hardly understand what cryptocurrency is, let alone how it works, will very likely come up with a new test to determine whether a digital asset is a security. That test might be very narrowly tailored to the specific facts and circumstances of the kik case or it might be very broadly constructed so as to sweep in far more tokens than even the SEC intended. Rather than simply waiting for the SEC and industry to organically work through the confusion Kik is taking a big legal risk because their back is against the wall. But the risk they’re taking has the potential to negatively impact many others.
I’m hopeful that, whatever the outcome for Kik, Congress will amend the definition to provide everyone with some clarity one way or the other.
I’m hopeful that, whatever the outcome for Kik, Congress will amend the definition to provide everyone with some clarity one way or the other.
The Securities Act prevents the offer or sale of a security for "value" -- and there is precedent that giving away free securities can still be an offer of securities for "value". See this 1999 SEC press release: https://www.sec.gov/news/headlines/webstock.htm
Whether something passes the Howey test and is deemed a security is a different matter, but you can "airdrop" a clear security (which certain cryptocurrencies certainly are), and violate Section 5 of the Securities Act notwithstanding the fact that the value to the issuer was not cash.
Whether something passes the Howey test and is deemed a security is a different matter, but you can "airdrop" a clear security (which certain cryptocurrencies certainly are), and violate Section 5 of the Securities Act notwithstanding the fact that the value to the issuer was not cash.
In the cases described at that link, "the investors were required to sign up with the issuers' web sites and disclose valuable personal information in order to obtain shares. Free stock recipients were also offered extra shares, in some cases, for soliciting additional investors or, in other cases, for linking their own websites to those of an issuer or purchasing services offered through an issuer."
The airdropped tokens I've seen did none of those things. Someone simply created a token contract and granted initial balances based on the ETH balances of existing addresses. The new owners don't even have to know the tokens exist.
The airdropped tokens I've seen did none of those things. Someone simply created a token contract and granted initial balances based on the ETH balances of existing addresses. The new owners don't even have to know the tokens exist.
Yet Bitcoin and Ethereum are not considered securities by the SEC. So clearly the same sort of asset is considered a security sometimes but not other times, essentially whenever the SEC decides.
The SEC doesn't decide whether a token is a security or not. It either is or it isn't, and the determination they make is based on work thst any company can and should do themselves before issuing any tokens in any form. There are clear methods that can be followed to know whether or not you are going to get a scary letter later.
Going through these measures to understand if what you are issuing is a security is not unusually difficult. It does take time, and often requires seeking good legal advice.
The strategy many of the worst ico's used, of trying to write their way around the very real considerations of securities laws, was poorly thought out and now they are paying the price.
There are many instances of projects that went about this the right way, I.e Filecoin, Ocean Protocol, Cardstack.
Going through these measures to understand if what you are issuing is a security is not unusually difficult. It does take time, and often requires seeking good legal advice.
The strategy many of the worst ico's used, of trying to write their way around the very real considerations of securities laws, was poorly thought out and now they are paying the price.
There are many instances of projects that went about this the right way, I.e Filecoin, Ocean Protocol, Cardstack.
Because Bitcoin and Ethereum are not stand-ins for shares in a particular entity.
Eth and BTc are quite different and Eth is absolutely a security.
Eth meets the Howey test. BTc arguably does not due to its manner of distribution and initiation.
Eth meets the Howey test. BTc arguably does not due to its manner of distribution and initiation.
According to the SEC chairman, ETH may have been a security at first but it's not anymore.
https://coincenter.org/link/sec-chairman-clayton-just-confir...
https://coincenter.org/link/sec-chairman-clayton-just-confir...
Yes, the SEC has handwaved it out of being a security.
That doesn’t change facts, they simply aren’t going to do anything about it.
That doesn’t change facts, they simply aren’t going to do anything about it.
Do we know for sure how it was distributed and initiated BT though? We don't even know who "Satoshi Nakamoto" is.
> Yet Bitcoin and Ethereum are not considered securities by the SEC.
Why is that ?
Why is that ?
Bitcoin and Ethereum do not pass the Howey Test because they are "sufficiently decentralized", primarily because no single enterprise is responsible for developing it.
But there is no framework on how exactly one becomes sufficiently decentralized, and because Ethereum had an ICO and is not a security, we know there is a way to do an ICO without needing to be registered. Unfortunately the current regulatory framework is opaque. The SEC "knows them when they sees them" so to speak but cannot explain clearly how to avoid becoming a security.
My hope is that this lawsuit will result in clear guidance on how to become a Bitcoin or Ethereum, which will significantly help boost the industry.
But there is no framework on how exactly one becomes sufficiently decentralized, and because Ethereum had an ICO and is not a security, we know there is a way to do an ICO without needing to be registered. Unfortunately the current regulatory framework is opaque. The SEC "knows them when they sees them" so to speak but cannot explain clearly how to avoid becoming a security.
My hope is that this lawsuit will result in clear guidance on how to become a Bitcoin or Ethereum, which will significantly help boost the industry.
ETH was specifically called out by one of the SEC guidance letters as something that was a security at the time of its issuance but is no longer a security because material facts pertinent to the Howey Test have changed (notably, they delivered on the product, ETH now has significant use-value apart from speculative purposes, and development & decision-making are decentralized).
That something could move from "security" to "not a security" in 3 years while preserving the ownership interests of stakeholders should probably tell you that crypto is something new, though, and that existing legal frameworks don't properly capture how it behaves.
That something could move from "security" to "not a security" in 3 years while preserving the ownership interests of stakeholders should probably tell you that crypto is something new, though, and that existing legal frameworks don't properly capture how it behaves.
Eth was a security was it stopped being a security before SEC took action, so there's nothing for SEC to do.now.
"The CFTC has designated bitcoin as a commodity. Fraud and manipulation involving bitcoin traded in interstate commerce are appropriately within the purview of the CFTC, as is the regulation of commodity futures tied directly to bitcoin. That said, products linked to the value of underlying digital assets, including bitcoin and other cryptocurrencies, may be structured as securities products subject to registration under the Securities Act of 1933 or the Investment Company Act of 1940."
https://www.sec.gov/news/public-statement/statement-clayton-...
https://www.sec.gov/news/public-statement/statement-clayton-...
So what happens to Kik now? Funding-wise, I mean.
The press release says that: "the company’s management predicted internally that it would run out of money in 2017. In early 2017, the company sought to pivot to a new type of business, which it financed through the sale of one trillion digital tokens."
I'm guessing that they spent a decent amount of the money they raised through the ICO. If they have to give it back, will they have to take on even more funding from a VC at even worse terms?
The press release says that: "the company’s management predicted internally that it would run out of money in 2017. In early 2017, the company sought to pivot to a new type of business, which it financed through the sale of one trillion digital tokens."
I'm guessing that they spent a decent amount of the money they raised through the ICO. If they have to give it back, will they have to take on even more funding from a VC at even worse terms?
>If they have to give it back, will they have to take on even more funding from a VC at even worse terms? ...
I think they are far more worried about being referred at this point. Who cares if you have try to pay back ICO investors? As long as you can stay out of prison, any terms are good terms. I suspect a good many people at Kik will be losing property they own, because this will definitely pierce the veil so to speak. But at times like this, only losing personal cash and property is a win in my book.
I think they are far more worried about being referred at this point. Who cares if you have try to pay back ICO investors? As long as you can stay out of prison, any terms are good terms. I suspect a good many people at Kik will be losing property they own, because this will definitely pierce the veil so to speak. But at times like this, only losing personal cash and property is a win in my book.
Why do you think this will pierce the veil? I don’t know the rules around that.
Kik is a Canadian company, and based upon most Canadian business owners I know their personal assets are most likely off-shored in one of the popular Caribbean islands used for this purpose. Tax evasion is rampant here.
> If they have to give it back, will they have to take on even more funding from a VC
That seems remarkably optimistic. The two likely options here seem to be dissolution with heavy fines for all involved, or something even more serious than that.
That seems remarkably optimistic. The two likely options here seem to be dissolution with heavy fines for all involved, or something even more serious than that.
How would these sort of cross border fines even work? I highly doubt Canada will extradite Kik executives.
This filing makes it appear that Kik was attempting to scam investors. That is simply not true though. Take a look at the Kin Foundation’s github repos. This is one of the most active crypto projects there is. My company implemented Kin into our app with over 10 million users. 40 other apps have also implemented it. There are over 400,000 users spending Kin within our apps each month. Kik might have broken securities law in their offering to the public, but don’t confuse that with the resulting project also being fraudulent or a scam. It’s not.
Is the technology a scam? You say no.
Is the ICO a scam? Yes, it wasn't legal.
"This filing makes it appear that Kik was attempting to scam investors."
Yes. They were. They pretended their ICO wasn't going to break securities law.
Is the ICO a scam? Yes, it wasn't legal.
"This filing makes it appear that Kik was attempting to scam investors."
Yes. They were. They pretended their ICO wasn't going to break securities law.
> Is the ICO a scam? Yes, it wasn't legal.
Not everything that's illegal is a scam. If somebody sells me cocaine and I'm happy with the product, it's illegal but nobody was scammed.
Not everything that's illegal is a scam. If somebody sells me cocaine and I'm happy with the product, it's illegal but nobody was scammed.
Yes, that's true. However, many securities laws exist to protect investors. So, if you knowingly violate securities laws, there's a pretty good chance you are knowingly putting investors in a disadvantageous position. That's a textbook definition of a scam.
> Yes, it wasn't legal.
Legal or illegal according to the laws in what jurisdiction? As international users, we obviously benefit from decisively reining in any American attempt at extraterritorial expansion. That is why, for example, we support the interdiction of American warships in the Black Sea (Russia) and the South Chinese Sea (China). I am waiting for the good news that either of these countries has finally sunk one of these vessels. That will be party time!
Legal or illegal according to the laws in what jurisdiction? As international users, we obviously benefit from decisively reining in any American attempt at extraterritorial expansion. That is why, for example, we support the interdiction of American warships in the Black Sea (Russia) and the South Chinese Sea (China). I am waiting for the good news that either of these countries has finally sunk one of these vessels. That will be party time!
In hindsight that seems to be the case, but in 2017 at the time of the ICO, the laws and how the SEC would interpret them was much more uncertain. They clearly decided to take a huge risk and it backfired. I’m not saying that it’s a risk I would have ever taken myself though.
It does feel the only reason we had so many ICOs in the past was to escape SEC rules.
That's not the relationship. ICOs are scams, and they violate SEC rules, but there are so many because SEC had not enforced rules until recently.
Not all ICOs are scam. That said the main reason we had those was to able to reach investors directly. Even unaccredited ones. Trying to find a loophole in SEC rules.
>The complaint further alleges that Kik marketed the Kin tokens as an investment opportunity. Kik allegedly told investors that rising demand would drive up the value of Kin
To be fair...
Yes Kik did sell them as investments... claiming rising demand would drive up the price of Kin... which did indeed happen.
The kin tokens increased in value over 10x from the price they were sold to investors at. It didn't last, of course.
I still don't understand why they didn't get SEC approval before offering the token sale, however.
They were savvy enough not to allow Canadian investors for that very same reason... because they're a Canadian company and did not want to get mixed up in unregistered securities sales in Canada.
To be fair...
Yes Kik did sell them as investments... claiming rising demand would drive up the price of Kin... which did indeed happen.
The kin tokens increased in value over 10x from the price they were sold to investors at. It didn't last, of course.
I still don't understand why they didn't get SEC approval before offering the token sale, however.
They were savvy enough not to allow Canadian investors for that very same reason... because they're a Canadian company and did not want to get mixed up in unregistered securities sales in Canada.
From the complaint https://www.sec.gov/litigation/complaints/2019/comp-pr2019-8... :
> Kik has agreed to jurisdiction in the United States concerning disputes relating to Kin. When selling Kin to the general public, Kik required investors to agree that all disputes about the purchase and use of Kin would be heard by an arbitrator or court in the United States, specifically in the State of Delaware.
So they should have known. And maybe they did, thinking that if they tried to register with the SEC their fundraise would not be allowed and the company would almost certainly declare bankruptcy; but that if they did not register, even after the DAO report, they'd at least have a chance of sneaking through, and if they were caught, they might avoid personal liability. Many people disobey the law out of desperation, and if nobody goes to jail, then disobedience becomes even more likely for those in such a situation.
> Kik has agreed to jurisdiction in the United States concerning disputes relating to Kin. When selling Kin to the general public, Kik required investors to agree that all disputes about the purchase and use of Kin would be heard by an arbitrator or court in the United States, specifically in the State of Delaware.
So they should have known. And maybe they did, thinking that if they tried to register with the SEC their fundraise would not be allowed and the company would almost certainly declare bankruptcy; but that if they did not register, even after the DAO report, they'd at least have a chance of sneaking through, and if they were caught, they might avoid personal liability. Many people disobey the law out of desperation, and if nobody goes to jail, then disobedience becomes even more likely for those in such a situation.
>their fundraise would not be allowed and the company would almost certainly declare bankruptcy
That was my best idea as well as to what they were thinking at the time.
Take money now and worry about the consequences later, or go bankrupt now and worry about that now.
That was my best idea as well as to what they were thinking at the time.
Take money now and worry about the consequences later, or go bankrupt now and worry about that now.
> I still don't understand why they didn't get SEC approval before offering the token sale, however.
Because what they did was illegal and the SEC would never have approved it. To do it legally, they would've had to only sell to accredited investors and there's no way they raise $100m doing that.
Because what they did was illegal and the SEC would never have approved it. To do it legally, they would've had to only sell to accredited investors and there's no way they raise $100m doing that.
And "accredited investors" only are the antithesis of crypto, the fact that people of any age are able to participate in this was the reason it was so successful as an ICO.
They marketed the product offering specifically at teens (Kik's demographic).
Are there legitimate uses for Kik past NSFW uses? I only ask because that is the only context in which I've ever seen Kik used. I didn't know if it was popular in other places (not the USA) for SFW purposes.
I use it as a general e-friends chat service. It doesn't require giving your address book or phone number like WhatsApp (and presumably doesn't track you like all Facebook products do). It gives you anonymity, unlike regular texting. It doesn't have terrible Microsoft-UX like Skype. It does one thing and does it well.
Thank you for your response! I've honestly never even installed it, maybe I should check it out.
Kik is being sued by the SEC for allegedly conducting an illegal securities offering. And it seems they clearly knew it was a securities offering, because they didn't sell to residents of their home country. They didn't disclose that they were near bankruptcy or that their service was wildly unprofitable - information that would have been useful for investors and that a legal securities offering or VC fundraising round would have made known to investors.
I'm not sure what about all of that makes them seem trustworthy. I guess they haven't been caught selling user data - but given that they allegedly committed fraud to keep the company afloat, I don't know why you would trust them not to.
I'm not sure what about all of that makes them seem trustworthy. I guess they haven't been caught selling user data - but given that they allegedly committed fraud to keep the company afloat, I don't know why you would trust them not to.
Kik originally was what WhatsApp became - a multi-platform messaging service set to replace SMS/MMS. Back in 2010, it was set to become the next BBM as it exploded in popularity and was available on every smartphone platform - Android, iOS, Windows Phone AND mobile, BlackBerry. There may have even been feature phone support as well.
This was before iMessage too, so the group chat and photo sharing capabilities were attractive. Facebook Messenger barely existed, and there was no such thing as Twitter or Instagram DMs.
Their app has barely changed since then and it’s taken new life as an AIM style messenger where you only need to exchange usernames to communicate. It’s bloated, slow, and has features that are stuck in 2013.
This was before iMessage too, so the group chat and photo sharing capabilities were attractive. Facebook Messenger barely existed, and there was no such thing as Twitter or Instagram DMs.
Their app has barely changed since then and it’s taken new life as an AIM style messenger where you only need to exchange usernames to communicate. It’s bloated, slow, and has features that are stuck in 2013.
only ever remember it being big with young kids/teens as a sort of alternative/escape from mainstream messenging apps before they jumped to other things like IG etc
It is/was super useful for tinder bots to make redundant contact before being banned from the tinder app.
Tinder-communications-pivoting was definitely one of the big use-cases I've seen (Along with other adult social networks like bumble, grindr, scruff) for Kik. That and on NSFW subreddits it appears to be one of the top ways for people to establish communication outside of reddit.
For those who want to guide to reading the lawsuit check out this annotated version by Katherine Wu[1]: https://static1.squarespace.com/static/5ac136ed12b13f7c187bd...
[1] https://www.katherinewu.me/writings/2019/6/4/annotated-guide...
[1] https://www.katherinewu.me/writings/2019/6/4/annotated-guide...
Looking at the price now, it's has a market cap of $18 million.
It reached $987 million at one point. Quite the bubble!
https://coinmarketcap.com/currencies/kin/
The have recently done a coin swap too - I have to assume that many people haven't swapped yet
So this is why they setup their "Defend Crypto" fund last week:
https://www.defendcrypto.org/
https://www.defendcrypto.org/
Has Kik cleaned up its child porn problem? Judging by a quick search, it's still the medium of choice for monstrous people in 2019. https://www.theverge.com/2017/8/6/16104280/kik-messenger-app...
>it's still the medium of choice for monstrous people in 2019.
You posted a link from 2017
You posted a link from 2017
Yes I did. Which is why I asked if they've changed. And then today, in 2019, I did a search for "Kik child porn" and found several brand new convictions for people trading child porn over Kik from 2019. So I said "still the medium of choice". Would you like me to post all those 2019 links for you? I presumed you were capable of finding them yourself.
Sure why not? Also your initial wording was vague, there's no need to be so angry. Just "here's some links for proof" and move on.
The same Kik from the 2016 left-pad debacle on npm?
If so, let's all stop and enjoy the schadenfreude. They bullied someone who had freely given his time and effort to the community. Perhaps he didn't react in the best way to that bullying, but Kik were the root cause of that. I hope the ill will they sowed during that episode has contributed to their troubles since then.
For anyone (like me) that needs a reminder: https://blog.npmjs.org/post/141577284765/kik-left-pad-and-np...
I'm confused from that summary why any of the left-pad debacle should be pinned on Kik. Maybe there was something behind the scenes I'm not seeing? From the post mortem NPM gave, this was entirely on Azer for rage quitting NPM (and for NPM for allowing it), fallout be damned. Even if you feel Kik bullied Azer into giving up the "kik" name (even though they made their case to NPM and deferred to them), that would only affect the kik package, not the 270 others Azer delisted.
The same. Apparently that whole affair hasn't taught them anything.
I thought the same ... I think it actually is the same.
a16z's commentary on the case, posted here a couple weeks ago:
https://a16z.com/2019/05/15/kik-and-the-sec-whats-going-on-a...
https://a16z.com/2019/05/15/kik-and-the-sec-whats-going-on-a...
It's ridiculous that the SEC can't tell you what is and what is not going to work up front. My god, why should companies have to risk so much in this.
Either they provide perfectly clear guidelines or they can screw off.
Anything vague is extremely bad for business as it causes undue risk, confusion, lawyers galore.
Also - timeframes matter. This event took place quite some time ago, it's totally unfair that the process takes this long.
The briefing, roadshow materials, legalese should be presented to the SEC and they should 'approve or not', and if not, then they can be taken to the courts before the ICO so that everything is legal up front.
I'm not one bit empathetic to Kik's ICO, if find it all kind of shady, but that should be made very clear before, not after actions are taken.
Either they provide perfectly clear guidelines or they can screw off.
Anything vague is extremely bad for business as it causes undue risk, confusion, lawyers galore.
Also - timeframes matter. This event took place quite some time ago, it's totally unfair that the process takes this long.
The briefing, roadshow materials, legalese should be presented to the SEC and they should 'approve or not', and if not, then they can be taken to the courts before the ICO so that everything is legal up front.
I'm not one bit empathetic to Kik's ICO, if find it all kind of shady, but that should be made very clear before, not after actions are taken.
Crypto-"currencies" are relatively new - and many including myself see them as innovative Pyramid-Ponzi schemes. There's also clearly a lot of VC money involved now, and other less savvy people's money in them - the army of HODLers, so the SEC has to tread carefully.
Would you prefer - would those companies prefer - being completely ban/blocked from operating until SEC understood it all? I'm guessing no. I'm guessing too that investors would have liked the protection though, as would society in general - those who got drawn in by the shallow hype and lost money.
Would you prefer - would those companies prefer - being completely ban/blocked from operating until SEC understood it all? I'm guessing no. I'm guessing too that investors would have liked the protection though, as would society in general - those who got drawn in by the shallow hype and lost money.
this is not true, you can get a No Action letter from the SEC upfront.
https://en.wikipedia.org/wiki/No-action_letter
https://en.wikipedia.org/wiki/No-action_letter
Unfortunately, getting a no action letter can take years and there is no guarantee you wilk ever get it. So far only one has been issued among probably numerous requests within the last year or two.
Does this mean azer can get his package back now
Hatie Haun had a pretty good writeup about this case a while ago. https://a16z.com/2019/05/15/kik-and-the-sec-whats-going-on-a.... She'll be doing a follow up soon. I think projects who got some flak for selling only to accredited investors will be very happy right now.
If that ico was a black box, it basically isn’t different than a stock where you buy a unit of it and expect the price to go up. What else would normal ppl expect it to do?
Fight the good fight https://www.defendcrypto.org/
Did you mean https://defundcrypto.org/ ?
yeah, like I'm going to send my money to some lawyers.
Maybe they wouldn't mind being paid in ICO?
For anyone interested, there is an annotated copy of the SEC document nicely done by Katherine Wu athttps://www.katherinewu.me/writings/2019/6/4/annotated-guide...
let's not forget that kik was the company behind the npm debacle and bullied a developer to give up his namespace.
>scam ICO
No need to be redundant.
No need to be redundant.
Please don't post unsubstantive comments here. We're looking for considerably better than this in HN threads, regardless of your views on scams, ICOs, or scam ICOs.
Not all ICOs are scams.
In some cases people have taken the time to work out a set of incentives that allows a market that previously needed to be operated by a corporate entity to be operated without central control.
Such an incentive scheme has intrinsic value equivalent to the coordinating body it replaces. An ICO for such a scheme is not necessarily a scam.
Certainly the vast majority of ICOs are scams, but not all. The vast majority of beggars sob stories are lies, but not all are. Sometimes someone really is in a tough spot and needs a couple dollars.
In some cases people have taken the time to work out a set of incentives that allows a market that previously needed to be operated by a corporate entity to be operated without central control.
Such an incentive scheme has intrinsic value equivalent to the coordinating body it replaces. An ICO for such a scheme is not necessarily a scam.
Certainly the vast majority of ICOs are scams, but not all. The vast majority of beggars sob stories are lies, but not all are. Sometimes someone really is in a tough spot and needs a couple dollars.
Name one
Ethereum. Also: Stellar.
Or anything where money is raised for a non-profit organization. Preferably as donations. More transparent this organization the better. Non-profit nature is very good in guarding against my expectation of profit by the work of an issuer.
Or anything where money is raised for a non-profit organization. Preferably as donations. More transparent this organization the better. Non-profit nature is very good in guarding against my expectation of profit by the work of an issuer.
Not sure how non-profits work in USA but in UK whilst charities can't give profits they can give massive wages/bonuses to people through payroll. You can start a charity, take donations, pay yourself a huge bonus and then declare the charity insolvent -- "no profit made, all available funds used for charitable purposes".
I think the major difference is that donors are expected to lose that money any way. Non-profit is not for profit by definition. There can be still fraud and false advertising, but at least there is no expectation of profit.
Ethereum has had it's share of controversies... not least the premine https://www.cryptoglobe.com/latest/2018/10/vitalik-buterin-u...
Telling that all respondents so far named something completely different.
Would you prefer it if everyone replied with the exact same post?
Telling in a good or bad way?
I'm in 'they're all scams' camp. All crypto coin backers have their pet crypto that's 'totally not a scam and it's going to the moon' apparently, and they're all different.
I think you're confusing ICOs with market value.
You don't back an ICO because its "value will go to the moon", you back an ICO because invents a new way for -- Creators to get paid instead of using advertisements, creative ways to organize some kind of distributed system.
The scam comes from them not completing their promises and leaving with the money and no "product". The coin's value is irrelevant (as long as it isn't 0)
The scam comes from them not completing their promises and leaving with the money and no "product". The coin's value is irrelevant (as long as it isn't 0)
Augur
>Immediately after the site launched, users had created death pools — or assassination markets — on famous people.
>Augur's user numbers dropped off sharply after launch in 2018: from 265 daily users in early July, to 37 on 8 August.
Maybe not a scam, but this does not convince me of the value of ICO-backed projects
>Augur's user numbers dropped off sharply after launch in 2018: from 265 daily users in early July, to 37 on 8 August.
Maybe not a scam, but this does not convince me of the value of ICO-backed projects
The common theme with this and some of the other answers is that they're actually adding value, and in a way that's directly related to cryptocurrency, rather than just providing a "greater fool" securities offering.
https://en.wikipedia.org/wiki/Augur_(software)
too few users to even be considered, in my opinion
too few users to even be considered, in my opinion
0x. BAT.
> BAT
If one of your examples is a charity fraud scheme masquerading as a crypto-currency start-up [0], I'm not sure you have a very good argument.
[0] https://news.ycombinator.com/item?id=18734999
If one of your examples is a charity fraud scheme masquerading as a crypto-currency start-up [0], I'm not sure you have a very good argument.
[0] https://news.ycombinator.com/item?id=18734999
[deleted]
No reason for BAT to be a token, in fact I'm quite confident it accomplishes nothing but making the user experience worse.
There is, though - you need its value to float on the open market so that if ads are underpriced (relative to their annoyance to the user), more users opt out, the supply of BAT on the market declines, advertisers have to pay a higher price, more users opt in, and equilibrium is restored. That's the whole point of having BAT in the first place: correctly price attention via market means.
Similarly, you can't use a regular currency (like just paying users in dollars, AllAdvantage style) because the value of a dollar is more dependent upon other markets like housing or food than on advertising. If attention is mispriced with that system, the only party who can correct that is Brave, and Brave doesn't has neither the information nor the incentive to set a correct market-clearing price.
Similarly, you can't use a regular currency (like just paying users in dollars, AllAdvantage style) because the value of a dollar is more dependent upon other markets like housing or food than on advertising. If attention is mispriced with that system, the only party who can correct that is Brave, and Brave doesn't has neither the information nor the incentive to set a correct market-clearing price.
Filecoin?
Orchid
Not available to the public, so not really in the same category, right?
This is a joke right...
vectorspace.ai
Blockstack
(Link discussing Harvard endowment investing) https://www.google.com/amp/s/www.bloomberg.com/amp/news/arti...
(Link discussing Harvard endowment investing) https://www.google.com/amp/s/www.bloomberg.com/amp/news/arti...
It is the kik that broke and triggered the left-pad fiasco a few years ago in the JS scene?
Kik is Canadian technically no?
From the last line of the article, Canadian regulators appear to be helping the SEC here:
> The SEC appreciates the assistance of the Ontario Securities Commission.
> The SEC appreciates the assistance of the Ontario Securities Commission.
Yes, but it was a a mostly US ICO. If it happens in the US it's subject to US regs.
Funny enough, none of it is legal in Canada apparently and Canadian citizens were not allowed to participate in the ICO.
Funny enough, none of it is legal in Canada apparently and Canadian citizens were not allowed to participate in the ICO.
Yes it is, headquartered in Kitchener, Ontario, Canada
If you sell a security to a U.S. Citizen then the SEC can come after you no matter where in the world you're based.
It doesn't matter where a company is if it offers securities for sale to US citizens.
... for left-pad!
Their market cap took a beating today:
https://coinmarketcap.com/currencies/kin/#charts
Kin ROI: -75%
https://coinmarketcap.com/currencies/kin/#charts
Kin ROI: -75%
What work is “officially” doing in the HN headline? Is there a practice of “unofficial lawsuits” by the SEC, or in general, that it is necessary to distinguish this “official” suit from?
Sort of. It's called a Wells Notice[1] and it essentially means that (barring some really excellent lawyering) charges are imminent.
[1] https://en.wikipedia.org/wiki/Wells_notice
[1] https://en.wikipedia.org/wiki/Wells_notice
A Wells notice is certainly a thing to distinguish from a suit, but does anyone ever refer to a Wells notice as a "suing" (perhaps "unofficially suing"), such that "officially suing" would need to be specified to make the distinction? (Yes, I realized that the HN title has changed to be closer to the source title, so this discussion is now about a title that doesn't exist anymore...)
Agreed, I've never heard anyone refer to a Wells notice as being "sued" (officially or unofficially!) but since there have been a few thread on HN about Kin/Kik's response to the Wells notice it was the only explanation for the wording I could think of.
Kik legal department is playing dumb to get billable hours, there is no other explaination. They will drag this out but SEC will probably ruin Kik in the long run
SEC Enforcement Letter: Nov 16, 2018.
https://www.kin.org/wells_response.pdf
https://www.kin.org/wells_response.pdf
Seems like the SEC only creates new regulation after they see a beefy money grabbing opportunity.
they do
How can SEC charge a non-US company?
The SEC does not decide the law. Courts do.
There is a major issue at stake here that should deeply concern anyone who cares about innovation in the US. I feel that HN is getting too caught up in the "scam" rhetoric and missing the bigger picture.
Whether or not Kin is a scam is an entirely different matter from whether or not Kin is a security. The SEC has jurisdiction over securities, but not over scams generally. There is a substantial debate as to whether or not Kin is a security. At the very least, a decent argument has been made that it is not. Clearly Kik and their lawyers think they can win. Personally, I largely agree with the logic laid out by Kik in their Wells Response to the SEC[1]. HN user elliekelly gave other great examples of of the difficulty in applying securities laws in cases like this[2].
We have to be very careful ceding ground to the SEC on what constitutes a security. This is absolutely worth fighting if you care about innovation in the United States. Many of the donors to Kik's Defend Crypto campaign couldn't care less about Kin. That is not the point. However, they do care immensely about the ramifications this case could have for businesses.
Businesses should be experimenting with new ways to finance companies. Perhaps that is through the sale of tokenized products or virtual currencies. Maybe they will provide great alternatives to venture capital over the long term. The label of "security" is an onerous one that creates massive obstacles to that innovation, especially for small companies. If the SEC succeeds in labeling Kin a security, what could have been the beginning of an innovative step towards new business models for fledgling startups is now forever regulated away into obscurity in the US. Meanwhile, businesses in other countries get to keep experimenting. The lackluster guidance and unpredictable enforcement has already led to companies taking their business elsewhere. It's a shame really.
If there is even a sliver of a doubt as to whether or not Kin constitutes a security, we should not be so quick to cede ground to the SEC. If we let the SEC go unchallenged, they will expand their reach, becoming more entrenched and widening the scope of what constitutes a security. Gaining ground back becomes harder over time, especially if the SEC wins court cases.
If Kin truly is a scam, we have a multitude of ways to prosecute them without involving the notion of securities. If nothing else, we always have regular contract or tort law if there were any contractual misrepresentations or intent to defraud. We don't need the label of "security" or action from the SEC for these kinds of claims, and this approach would be perfectly adequate. There are a number of government agencies that could bring these sorts of cases and fight for the public. Trying to prove it is a security at the same time is simply regulatory overreach.
Bottom line, maybe Kin is a scam (I don't think so), maybe someone should do something about it, but let's be careful about expanding the scope of what constitutes a security. There are plenty of ways to prosecute Kik without ceding that ground.
Side point: if the SEC succeeds in labeling Kin a security this creates all sorts of logical incongruities with past no-action letters or lack of enforcement in other areas. For example, if Kin is a security, why were the San Francisco Giants given a no-action letter for pre-sales of stadium seats "all of which were initially sold to fans prior to the Park’s opening day" which could be resold through "a service that would facilitate the resale of Charter and Club seat licenses"?[3] Sure, the Giants made a buyer represent that they were "not acquiring the [seat] as an investment and has no expectation of profit", but do we really think that stopped people from buying with the intent to profit? ICOs put the same representations in some of their pre-sale agreements, and we all know that did not stop people. What amount of intent to consume vs resale is appropriate? Broadway theater shows do the same sort of pre-sales of seat licenses, and we all know how much people profit from the resale of successful shows. This checks all of the boxes of the Howie Test (paid money, expectation of profit, dependency on managerial efforts). How come the SEC does not bring action there? I don't see fair and even enforcement of the law, which really brings the efficacy of it all into question.
[1] Kin Wells Response, https://www.kin.org/wells_response.pdf
[2] HN comment by elliekelly, https://news.ycombinator.com/item?id=20098363
[3] https://www.sec.gov/divisions/corpfin/cf-noaction/sfba022406...
Whether or not Kin is a scam is an entirely different matter from whether or not Kin is a security. The SEC has jurisdiction over securities, but not over scams generally. There is a substantial debate as to whether or not Kin is a security. At the very least, a decent argument has been made that it is not. Clearly Kik and their lawyers think they can win. Personally, I largely agree with the logic laid out by Kik in their Wells Response to the SEC[1]. HN user elliekelly gave other great examples of of the difficulty in applying securities laws in cases like this[2].
We have to be very careful ceding ground to the SEC on what constitutes a security. This is absolutely worth fighting if you care about innovation in the United States. Many of the donors to Kik's Defend Crypto campaign couldn't care less about Kin. That is not the point. However, they do care immensely about the ramifications this case could have for businesses.
Businesses should be experimenting with new ways to finance companies. Perhaps that is through the sale of tokenized products or virtual currencies. Maybe they will provide great alternatives to venture capital over the long term. The label of "security" is an onerous one that creates massive obstacles to that innovation, especially for small companies. If the SEC succeeds in labeling Kin a security, what could have been the beginning of an innovative step towards new business models for fledgling startups is now forever regulated away into obscurity in the US. Meanwhile, businesses in other countries get to keep experimenting. The lackluster guidance and unpredictable enforcement has already led to companies taking their business elsewhere. It's a shame really.
If there is even a sliver of a doubt as to whether or not Kin constitutes a security, we should not be so quick to cede ground to the SEC. If we let the SEC go unchallenged, they will expand their reach, becoming more entrenched and widening the scope of what constitutes a security. Gaining ground back becomes harder over time, especially if the SEC wins court cases.
If Kin truly is a scam, we have a multitude of ways to prosecute them without involving the notion of securities. If nothing else, we always have regular contract or tort law if there were any contractual misrepresentations or intent to defraud. We don't need the label of "security" or action from the SEC for these kinds of claims, and this approach would be perfectly adequate. There are a number of government agencies that could bring these sorts of cases and fight for the public. Trying to prove it is a security at the same time is simply regulatory overreach.
Bottom line, maybe Kin is a scam (I don't think so), maybe someone should do something about it, but let's be careful about expanding the scope of what constitutes a security. There are plenty of ways to prosecute Kik without ceding that ground.
Side point: if the SEC succeeds in labeling Kin a security this creates all sorts of logical incongruities with past no-action letters or lack of enforcement in other areas. For example, if Kin is a security, why were the San Francisco Giants given a no-action letter for pre-sales of stadium seats "all of which were initially sold to fans prior to the Park’s opening day" which could be resold through "a service that would facilitate the resale of Charter and Club seat licenses"?[3] Sure, the Giants made a buyer represent that they were "not acquiring the [seat] as an investment and has no expectation of profit", but do we really think that stopped people from buying with the intent to profit? ICOs put the same representations in some of their pre-sale agreements, and we all know that did not stop people. What amount of intent to consume vs resale is appropriate? Broadway theater shows do the same sort of pre-sales of seat licenses, and we all know how much people profit from the resale of successful shows. This checks all of the boxes of the Howie Test (paid money, expectation of profit, dependency on managerial efforts). How come the SEC does not bring action there? I don't see fair and even enforcement of the law, which really brings the efficacy of it all into question.
[1] Kin Wells Response, https://www.kin.org/wells_response.pdf
[2] HN comment by elliekelly, https://news.ycombinator.com/item?id=20098363
[3] https://www.sec.gov/divisions/corpfin/cf-noaction/sfba022406...
Time to refund?
Good!
Good!
According to https://www.kik.com/terms-of-service, they seem to have chosen jurisdiction in Canada: "Kik Interactive Inc. is located in Canada at 420 Weber Street East, Unit I, Waterloo, Ontario, N2L 4E7."
According to the article, "The Securities and Exchange Commission today sued Kik Interactive Inc", without clarifying in what jurisdiction they are suing them. It is about "the sale of one trillion digital tokens". It is therefore about the exchange of KIN tokens against other tokens such as BTC, ETH, USDT, or similar.
The KIN token is traded on 10+ different non-jurisdictional exchange platforms: https://coinmarketcap.com/currencies/kin/#markets
The American SEC cannot reasonably claim jurisdiction over the non-jurisdictional Ethereum platform, nor over any non-jurisdictional exchange platforms, because in that case, every country could do that too. If every country can do that, then no country can do that.
Why?
Well, in that case, KIK could trivially seek protection in North Korea or Russia, and prevent US enforcement by shielding under their nuclear umbrella.
Concerning KIK's marketing communications, it is not clear who exactly can regulate such messages: the country of message origination or the country of message destination.
We cannot allow US government departments to grab control over non-jurisdictional issues. That is absolutely not in the interest of international users. Therefore, it is necessary to encourage geopolitical adversaries of the USA to impede, thwart, and undermine any such attempt.
According to the article, "The Securities and Exchange Commission today sued Kik Interactive Inc", without clarifying in what jurisdiction they are suing them. It is about "the sale of one trillion digital tokens". It is therefore about the exchange of KIN tokens against other tokens such as BTC, ETH, USDT, or similar.
The KIN token is traded on 10+ different non-jurisdictional exchange platforms: https://coinmarketcap.com/currencies/kin/#markets
The American SEC cannot reasonably claim jurisdiction over the non-jurisdictional Ethereum platform, nor over any non-jurisdictional exchange platforms, because in that case, every country could do that too. If every country can do that, then no country can do that.
Why?
Well, in that case, KIK could trivially seek protection in North Korea or Russia, and prevent US enforcement by shielding under their nuclear umbrella.
Concerning KIK's marketing communications, it is not clear who exactly can regulate such messages: the country of message origination or the country of message destination.
We cannot allow US government departments to grab control over non-jurisdictional issues. That is absolutely not in the interest of international users. Therefore, it is necessary to encourage geopolitical adversaries of the USA to impede, thwart, and undermine any such attempt.
"When we looked at raising another round [of VC funding], we asked ourselves how do we answer the question about how we will become a profitable business [...] We didn’t have an answer we really believed."
... so instead they decided to raise money from unsophisticated investors in an unregulated market, where nobody asks such inconvenient questions! No surprise that the SEC is upset.
[1] https://news.ycombinator.com/item?id=15245656