The U.S. Securities and Exchange Commission has sued Ontario-based Kik Interactive Inc. for conducting an "illegal" US$100 million securities offering of digital tokens.
The securities regulator says that Kitchener-based company sold the tokens to U.S. investors in 2017 without registering their offer and sale, or providing proper disclosure, as required by U.S. securities laws.
The SEC alleges in its complaint that Kik lost money "for years" on its main product, an instant messaging platform called Kik Messenger, and it sought to raise money for a new type of business by selling digital tokens.
The regulator says from May to September 2017, Kik offered and sold one trillion digital tokens called Kin for approximately US$100 million to more than 10,000 investors, of which US$55 million came from U.S. based buyers.
Kik's chief executive Ted Livingston says the company is "excited" to take on the SEC in court and is "confident" it will win.
Livingston added in a tweet containing a link to the SEC's announcement of the lawsuit that "we are finally on the path" to getting clarity on cryptocurrency for the industry.
Kik did not immediately respond to a request for comment on the SEC's lawsuit.
The SEC alleges that Kik marketed the tokens as an investment opportunity and told investors that rising demand would drive up the value of Kin.
The regulator says in its complaint that Kin tokens recently traded at roughly half of the value that public investors paid in the offering.
"By selling $100 million in securities without registering the offers or sales, we allege that Kik deprived investors of information to which they were legally entitled, and prevented investors from making informed investment decisions," said Steven Peikin, the SEC's co-director of its enforcement division in a statement.
"Companies do not face a binary choice between innovation and compliance with the federal securities laws."
