After Kik raised almost $100 million from investors, the SEC subsequently charged Kik with violating Section 5 of the Securities Act of 1933, alleging that the Kin tokens should have been registered as securities and accompanied by the proper investor disclosures. Kik claimed that the funds from the offering would help create a "Kin Ecosystem" revolving around - and driving up the value of - its new token. which, in 2017, sold one trillion of its digital tokens called "Kin" ( SEC v. These cases provide a glimpse of what's likely to come.įor example, in June 2019, the SEC filed a complaint in the Southern District of New York against Kik Interactive Inc.
The SEC has already waged several successful legal battles against crypto creators and platforms on this front. 4, 2021).Įarlier this year, Gensler also indicated in a virtual press conference that the SEC will be focusing on crypto exchanges in 2022 ("Crypto Exchanges Will Face More Scrutiny From SEC, Gensler Says" Bloomberg, Jan.
The Howey Test requires that there must be (1) the investment of money (2) in a common enterprise (3) with a reasonable expectation of profits to be derived from the efforts of others.Įchoing his predecessor's sentiments, current SEC Chair Gary Gensler reiterated to CNBC in August 2021 that the SEC considers many cryptocurrency coins and tokens to be securities under the Howey Test, saying, "If somebody is raising money selling a token and the buyer is anticipating profits based on the efforts of that group to sponsor the seller, that fits into something that's a security" ("SEC chair Gary Gensler on his vision for cryptocurrency regulation" Aug. When determining whether a digital asset is a security, the SEC considers whether the asset constitutes an "investment contract." For an asset to be considered an investment contract, it must meet the three criteria of the Howey Test which was developed and named after the Supreme Court case SEC v. But since terms like "coin," "token," "currency," and "asset" are regularly used interchangeably to describe the thousands of products in the crypto world, it's difficult to accurately categorize them based on nomenclature alone.
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