The US Securities and Exchange Commission today proposed to a New York court that messaging app company Kik should pay a $5 million fine for illegally holding a $98 million initial coin offering (ICO) for its crypto network, Kin.
US District Court Judge Alvin Hellerstein sided with the SEC in its lawsuit against the Canada-based company at the end of September. Now, the SEC seeks to impose a penalty.
The proposed penalties, which are yet to be ratified by the judge, would require Kik to wire the SEC $5 million and give it 45 days notice before it starts another token sale. Five million dollars—that’s it. This penalty, it seems, would not force Kik to return the $98 million it raised in its 2017 ICO to investors. Attorneys for Kik did not immediately respond to Decrypt’s request for comment.
The SEC filed the suit against Kik in May 2019. It alleges that its ICO constituted an illegal securities sale, which Kik hadn’t registered with the SEC. Kik vehemently denied this and argued that its token sale was not a securities sale, and that a purchase of Kin did not constitute an investment contract. People bought Kin tokens for their utility, not for speculative purposes, the company argued.
The case dragged on and on, nearly bankrupting Kik. Last September, Kik fired about 80% of its workforce and sold itself to a larger company, who introduced ads to the platform. The firm initially fundraised $5 million in mid-2019 through a “Defend Crypto” campaign to help its cause. CEO Ted Livingston said at the time that the funds would also be used to defend other ICO-funded crypto startups from the SEC.
Ironically, $5 million appears to be just the right amount to set things right with the SEC.
The small settlement is somewhat unusual when the SEC reaches a deal with crypto companies over ICOs—though it isn’t unprecedented. Block.one, which raised $4 billion in an ICO for its blockchain network, EOS, only had to pay $24 million to the SEC when it reached its deal last October. Telegram had to pay $18.5 million for its $1.7 billion ICO when it reached a deal in June of this year—though Telegram did have to return the money it raised in its ICO to investors.