The U.S. Securities and Exchange Commission (SEC) lawyers have stated that the defense put up by Kik in its August submission makes no sense. Kik is contesting the agency’s claim that the 2017 ICO by the company breached securities law and that Kik was aware that it contravenes the law.
The agency and SEC lawyers have been locked in a legal battle that is meant to determine if the Kik token sale would be voided. The company’s lawyers have stated that the law on which SEC based its suit is vague and that the company should be shielded from legal consequences.
SEC’s lawyers are having none of that and made submissions to the court to that effect:
“This defense asserts that, notwithstanding 70-plus years of well-settled jurisprudence, the term ‘investment contract’ in the securities laws is void for vagueness as applied to Kik’s investment scheme. This claim is untenable and should be dismissed.”
The company leaning and dependence on “void for vagueness” has been challenged by that regulator. Speaking about it Rebecca Rettig, an attorney at FisherBroyles said:
“Kik is obviously using the void for vagueness defense as a way to try to peek behind the curtain at the SEC to figure out if the SEC really had a plan all along.”
The agency is insisting that Kik’s defense hinged on void for vagueness should be dismisses by the court.
In contention at this point should be what constitutes an investment contract. SEC is depending on the 1946 Supreme court v. Howey case that is popularly known as ‘Howey test’ which stated that if a transaction invests in a common enterprise (i.e. a business) with the expectation of profit primarily from the effort of others, it is an investment contract. And therefore: a security.
Such investments fall under the regulatory purview of SEC. Perhaps the fact that the Securities Act of 1933 which has Section 5 not explicitly state what an investment contract is may be the reason Kik’s lawyers are striving to be shielded from the legal consequence of the ICO.
SEC maintained that Kik was aware that the sale fell under the regulatory function of the agency and that the company was aware that it would get the attention of the agency. The legal action initiated by SEC since June would determine the fate of the project for which Kik raised $100 million in ICO sales from its token.
Appeal To Vagueness
Kik argued in August that:
“As applied to Kik’s offer and sale of Kin in 2017, the definition of ‘investment contract’ (as urged by the Commission) is hopelessly vague, and leaves the Commission free to engage in arbitrary and discriminatory enforcement in this space.”
Until the court makes its ruling, the arguments will continue with both parties trying to prove that the law favors their stand. The court’s decision may take weeks or even months.