Kik CEO Ted Livingston Photo by Noam Galai/Getty Images for TechCrunch

The U.S. Securities and Exchange Commission has opened a case against Kik Interactive, the Canadian company behind the popular Kik Messenger app that’s valued at $1 billion. The SEC in its suit, claims a $100 million ICO completed by Kik in 2017 was illegal, asserting that the tokens offered to U.S. investors were not duly registered as required by U.S. securities laws.

The SEC alleges that Kik had lost money for years on its core product, Kik Messenger, with predictions by the company’s management that it would run out of cash in 2017, the same year it held its ICO. Kik raised $100 million by selling one trillion digital tokens, with the bulk of that ($55 million) coming from U.S. investors. The SEC alleges that Kik’s tokens recently traded at roughly half of the value that investors paid for in the offering.

SEC Chairman Jay Clayton image: Securities and Exchange Commission/Columbia University

The SEC claims Kik marketed its tokens as an investment opportunity, alleging the company told buyers that rising demand would drive up the value of its tokens and that it would work on attracting such demand, by methods including incorporating the tokens into its messaging app, creating a new transaction service for the tokens, and building a system to offer rewards to companies that adopt the token. The SEC alleges that these services and systems did not exist and that there was nothing to purchase using Kik’s token, named Kin.

The SEC also says Kik claimed that it would hold three trillion of its tokens but eventually offered them on secondary markets and made profit alongside investors from increased demand. The SEC is charging Waterloo-based Kik with violating the registration requirements of Section 5 of the Securities Act of 1933 and is seeking a permanent injunction, disgorgement plus interest, and a penalty.

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