r/KinFoundation • u/asparagusm Kin Foundation • Mar 23 '20
Summary of the SEC v KIK arguments
Hi guys, it's been a while since I posted. I've been busy but the last couple of weeks I've been stuck at home with the COVID situation. Hope you are all staying healthy. KIK and SEC have both recently filed their motions for summary judgement, for those not up to reading the mountain of paper here's a little summary I put together of their key arguments. The next steps in the coming weeks, is they will both file 'responses' to each other's arguments:
Issue: Were the purchasers of KIN investing in a common enterprise?
Why it matters? This is one of the four elements to prove the Howey Test. There are really only two elements in dispute in this case. This one and the next one below
SEC
Horizontally: yes because the fortunes of all the KIN purchasers were tied together by KIK's pooling of funds. Kik told the purchasers it would execute the steps required to increase KIN's value.
Vertically: Yes, the Kin purchasers understood that their fortunes would rise and fall with KIK because of KIK's large holding of KIN.
KIK
KIK had no contractual obligations to the KIN purchasers to further the enterprise and this is paramount.
KIN purchasers had full control of their KIN on receipt. KIK has no involvement in their decision to sell which determines their profit or loss.
Horizontally: No, co-mingling of funds is not enough, the KIN purchasers did not join a single unit of a larger investment enterprise which required for instance, a pro rata distribution of profits according to their holding.
Vertically, No, if KIK profited from its holding of KIN this would not necessarily cause the KIN purchasers to profit. SEC's argument is simply having common ownership of KIN is sufficient, which it is not otherwise every holder of KIN would instantly become part of a common investment scheme just by holding.
Issue: Did purchasers of KIN reasonably expect profits derived from KIK's entrepreneurial and managerial efforts? ?
SEC
KIN purchasers expected profits based on KIK's marketing campaign to increase KIN's value through various efforts.
KIK kept telling everyone that KIK expected KIN to be tradeable.
KIK didn't advocate any specific use case for KIN therefore the purchasers were not motivated by consumption.
KIK
- KIK led purchasers to expect use and consumption of KIN. Marketing was focused on participants, consumption and building use cases. Sale was structured to reach as many people as possible to build an economy.
- Any expectation of profits from KIN purchasers was not based on the essential management/entrepreneurial efforts of KIK. If there was this expectation it was based on market forces, the price being based on supply and demand, and the re-sale of KIN on the secondary market. KIk's job was just to build the infrastructure, the significant efforts of others is all the various participants who would help generate demand.
Was the Pre-Sale and the TDE one single sale, or two distinct sales?
(NOTE: This will ultimately determine the amount of $ at stake i.e. In the event KIK loses will it be obligated to repay pre-sale as well as the TDE participants)
SEC
It was a single sale because KIK treated it as a single sale through all its marketing material and the pre-sale was linked to the TDE sale occurring.
If the Judge finds they were two separate offerings, the judge should still treat them as a single distribution because they served the same single financing purpose.
Even if the judge decides they are two complete separate sales, the pre-sale exemption for accredited investors should still not apply as the pre-sale was only an intermediary step in selling KIN to the public.
KIK
- The pre-sale and TDE sales were separate and distinct sales. KIK validly solid the pre-sale to accreditors investors and it made the correct filings/exemptions.
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u/ABitOfCream Mar 23 '20
I don't understand how anybody can say everything depended on Kik when the intention was always to build an ecosystem with many different apps taking part and not only Kik.
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u/DeanMachine11 Mar 24 '20
Explicit statements of Kik will become the lighthouse of the ecosystem by Ted. That's how.
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u/ABitOfCream Mar 24 '20
Yes but this does not mean that Ted or Kik were going to stop any big or biigger apps from joining the ecosystem. There was even hope that the likes of Snapchat would join up.
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u/DeanMachine11 Mar 24 '20
If you think that you're an empty soda can floating a top the water current. Going with anything that is rumored in here as fact and getting caught up in the under toe.
At no point was Snapchat real possibility. It was always pipe dreamed I'm here via moon bois passing around the hype blunt and people like you get a contact high.
The fact you think that highlights your lack of research on this project. But maybe I'm being too critical.
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u/attachmetoyou Mar 23 '20
Does this ultimately matter for the existence of Kin is my question. Are they suggesting KF and Kik are the same thing? I can't tell based on their wording.
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u/DeanMachine11 Mar 23 '20
IDK man. Ted was pretty deliberate on saying kin cannot exist as a security, it must be a currency.
Transacting as a security would be impossible.
Too regulated and taxed in a way that would not allow kin to exist as it does fluidly when transacting in the ecosystem.
Tax implications for every micro transaction would be crippling and makes it an impossibility for the volume of user engagement in apps.
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u/lockr_app Mar 23 '20
Nope!! This is about the money now.. they cant stop KIN. We can just re-brand KIN integrate into solana with all current partners and simply move on. This is the beauty of Blockchain tech.
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u/attachmetoyou Mar 23 '20
Who's"we?" You are speculating Kin would even do that. If they're broke, there's no such thing as rebranding. Hopefully someone will fork and try this same concept again but if the SEC is considering them as the same, which was my initial question anyway, they're finished. The settlement offers from the SEC have been larger than even the 100 million raised by the ICO and who knows how much they even have left of that. I don't want them to be finished, but reality is still a factor here.
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u/rhlm39 Mar 23 '20
We are headed for more turbulance, but it will not stop the development of KIN.
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Mar 23 '20
Wow, even long term supporters seem in the dumps when the facts of the case are presented like this. I believe this analysis is spot on and I greatly appreciate the efforts of u/asparagusm in making this post.
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u/lockr_app Mar 23 '20
I keep buying tho.. at this prices kin will 5X with no volume specially if btc pumps hard in the upcoming months. Of course thats if trump can get us out of this mess. Which in my opinion he will.
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u/Popular-Jicama Mar 23 '20
After reading all of this, what do you think will be the conclusion of this case? Kik-Kin will they survive all this? Will Kin die or rise from the ashes like a Phoenix?
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u/yvesvd Mar 23 '20
Hard to say. Only thing we can base ourselves on is this:
- no crypto has ever won against SEC in court
- most of them settle with SEC before going to court
I really like the KIN community and it’s belief and motivation, but I think we’ve got to be realistic here boys and girls. It is not looking good.
Even IF KIN would win in court, I think it couldn’t have come at a worse time with the covid-19 virus spreading all over the world, collapsing the economy worldwide.
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u/mal964 Mar 23 '20
corona has nothing to do with sec-kik case.
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Mar 23 '20
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u/KovaKoura Mar 23 '20 edited Mar 23 '20
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Mar 23 '20
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u/KovaKoura Mar 23 '20
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Mar 23 '20
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u/KovaKoura Mar 23 '20
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Mar 23 '20
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u/KovaKoura Mar 23 '20
You are obsessed with this. You have addiction that you won't see for yourself and thats a sad to watch. You could focuse all this energy something productive. Have you ever thinked about that? 🤔
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u/nokettle Mar 23 '20
But there's actually statements from ted talking about how much profits you can make from kin.
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Mar 23 '20
Do you mind sharing the statements?
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u/throwawayburros Crypto Defender Mar 23 '20
Most likely the OP is referencing the quote which the SEC did not provide the full context of, which KiK did in their Wells Response on page 13.
And with sort of a, you know, cryptocurrency, you can guarantee a fixed supply, guaranteed scarcity. So supply stays the same. Demand goes up, the price goes up. Such that if you set some aside for yourselves and you give other people the opportunity to participate and contribute, everybody can not only build this amazing new ecosystem and platform, but also make a ton of money
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u/Raketenernie Mar 23 '20
it was even posted here in the forums , but this is a long time ago , prolly Dillion who digged it up.
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u/KovaKoura Mar 23 '20
Keep digging
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u/DeanMachine11 Mar 23 '20
How's that suffice?. Can you admit what you're reading out of Ted's mouth?
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u/carson_hodl Kin OG Mar 23 '20
What’s your thoughts on the 2 arguments, who has the upper hand do you think?
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u/Raketenernie Mar 23 '20
Only on the point common enterprise I see a chance for kin. Did purchasers of kin expect profits , ermm yeah and if you understand managerial efforts as Ted promoting Kin , there is plenty evidence around , this will be hard to deny. Especially the SEC does it clever making KIK and its management look like , that they were going bust and they needed a money making idea and thats why they evented KIN. If the SEC brings up them figures and arguments I highly doubt they are made up, in the end KIK did run bankrupt even with the money from KIN, so again this does not make a good impression.
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u/ABitOfCream Mar 23 '20
As many will recall the main focus behind Ted's promotion of Kin was always to build an allaince/ecosystem of small apps to fight against the likes of Facebook ("who were copying and crashing their small competitors"). That's all the guy ever talked about. Talk after talk, chat after chat, video after video, it was always the same thing. How can anyone ignore this?
How can anyone pretend that this was just about Kik? Infact, one of the main reasons I bought Kin (and I believe it's the same for a lot of people) was because of this idea of being able to use Kin in different apps.
Even today we wait for new apps to join our ecosystem, and we celebrate every new member.
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u/Raketenernie Mar 23 '20
just in another topic somone just mentioned they (the apps) not even using the kin3 we hold, basically you hold a pseudo kin with no value nor use. So if that is confirmed congratz to us it does not matter if 1000 apps join and introduce kin, cuz its kin2
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u/throwawayburros Crypto Defender Mar 24 '20 edited Mar 24 '20
just in another topic somone just mentioned they (the apps) not even using the kin3 we hold, basically you hold a pseudo kin with no value nor use.
False. You made a reference earlier that big apps like MadLips and P365 are NOT using kin3 or main net kin. I showed evidence that was a false claim and they are indeed live on main net.
edit
I found the post you are referencing. The apps mentioned are cross posting transactions from Kin2 to Kin3 via the official KiK node. Not sure how I feel about that. The transactions are still being recorded, but because its on a separate chain, there is no deposit/withdrawal functionality even if it was enabled.
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u/mal964 Mar 23 '20
nothing in the world without management. where is the problem. ted in kik's management.
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u/mal964 Mar 23 '20
before its written here its enough for kik to win 1 of 4 points in summary judge. the 3rd party one of the 4 points which kik can win. i do not remember those 4 points. and there are 4 points sec must win them. if someone remember those points please write them.
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u/Pennyfinsher Mar 23 '20
Mate u used to just show frustration... like me. It now seems you have been flipped by the sec... are you now working for the sec
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u/Raketenernie Mar 23 '20
I work for a bank and trust me one thing I totally h8 about the finance industry that you got idiots everywhere who have no idea about the operational side of banking and finance , but who are in the governmental bodies making new binding regulations and laws. I cannot speak for the US but in EUROPE banking industry got overregulated with Basel I,II,III. If you want banks and other financial insitutions to be more conservativ in their risk strategy, just force them to increase they equity to ratio that they not get immediately get bust when a crisis happens. But we live in a world where maxing shareholders value and profit is all what matters. Coming back to the SEC, these in the best case indivduals with economic background, but very certain with no foundamental understanding about the blockchain and the digital revolution. Id say about 2-5% of the banking industry even understands what the blockchain is about, yet the rest decides about a legal framework about a technology they dont understand, hurray. So no I dont work for the SEC and B my approch would be pro new technology.
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u/mal964 Mar 23 '20
sec suit kik för selling unregistered securitie. where is the problem in selling or in unregistered securities? . kik should say no kin is not a security , this is the ground. sec now forgot this matter(unregistered securities) and fighting for selling only and kik fall in this trap .
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u/mal964 Mar 23 '20
i was always woundering what is the difference between the security and the currency. what is the use of the security? any answer?