Kik enjoyed a (minor) victory recently, when United States District Court Judge Alvin K. Hellerstein rejected the SEC's argument that the details of the Kik case are substantially the same as the recent Telegram settlement. The comment came during submissions on why each party's application for summary judgment should be granted, with both parties hoping to end the lawsuit before it really starts.
Emboldened by the SEC's recent settlement with Telegram, SEC counsel Stephan Schlegelmilch argued during submissions that:
...the economic reality is that Kik engaged in an old-fashioned capital raise using a new-fangled device, the blockchain...
and
This was a thing that had no value whatsoever. What it had was Kik’s promises to give it value. And that is a quintessential security, that is a quintessential investment contract and why this matters...
Mr Schleglemilch argued that the Kik token offering was practically very similar to the Telegram token offering. At this point Judge Alvin K. Hellerstein interjected, commenting that where the SEC had only requested a preliminary injunction in the Telegram case, with a much lower bar to success, the SEC is seeking summary judgement against Kik. His Honour said:
I understand that Judge Castel’s decision has a lot of reasoning that is comfortable to you. [It’s a] very well-reasoned decision characteristic of Judge Castel, but I think our issue is different.
Kik supporters should hold off on celebrating just yet though, as Judge Hellerstein expressed scepticism that the Kin token is akin (sorry) to a currency, rather than a security.
Responding to Kik’s defense that under the Howey, the Kin offering did not qualify as a common enterprise where the purchaser was led to expect profits from the efforts of the promoter or a third party, Judge Hellerstein said:
I can’t see the difference between that and a stock
These arguments were made by phone conference on 9 July 2020, with His Honour yet to publish judgment at the time of writing. The most likely outcome remains that neither party's application for summary judgment is successful, and the case proceeds closer to a full trial, which may lead to a more considered set of legal reasoning of how initial coin offerings should be treated under US law.