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Case 1:19-cv-05244-AKH Document 1 Filed 06/04/19 Page 1 of 49
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`
`
`Stephan J. Schlegelmilch
`David S. Mendel
`U.S. SECURITIES AND EXCHANGE COMMISSION
`Division of Enforcement
`100 F Street, N.E.
`Washington, DC 20549
`Counsel for Plaintiff
`
`
`
`
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`U.S. SECURITIES AND EXCHANGE
`COMMISSION,
`
` Plaintiff,
`
`vs.
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`KIK INTERACTIVE INC.
`
`
`Defendant.
`
`
`
`
`
`
`
`Case No. 19-cv-5244
`
`Jury Trial Demanded
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`
`
`
`COMPLAINT
`
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`Plaintiff United States Securities and Exchange Commission (the “SEC”) alleges as follows
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`against Defendant Kik Interactive Inc. (“Kik”):
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`SUMMARY
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`1.
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`From May to September 2017, Kik offered and sold one trillion digital tokens called
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`“Kin.” More than 10,000 investors worldwide purchased Kin for approximately $100 million in
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`U.S. dollars and digital assets – over half of this sum coming from investors located in the United
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`States. However, Kik’s offer and sale of Kin was not registered with the SEC, and investors did not
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`receive the disclosures required by the federal securities laws.
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`2.
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`Congress enacted the Securities Act of 1933 to regulate the offer and sale of securities.
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`In contrast to ordinary commerce, which often operates under the principle of caveat emptor,
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`Congress enacted a regime of full and fair disclosure, requiring those who offer and sell securities to
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`Case 1:19-cv-05244-AKH Document 1 Filed 06/04/19 Page 2 of 49
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`the investing public to provide sufficient, accurate information to allow investors to make informed
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`decisions before they invest. Such disclosure is ordinarily provided in a “registration statement,”
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`which provides public investors with financial and managerial information about the issuer of the
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`securities, details about the terms of the securities offering, the proposed use of investor proceeds,
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`and an analysis of the risks and material trends that would affect the enterprise.
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`3.
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`Section 5(a) of the Securities Act [15 U.S.C. § 77e(a)] provides that, unless a
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`registration statement is in effect as to a security or an exemption from registration applies, it is
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`unlawful for any person, directly or indirectly, to sell securities in interstate commerce. Section 5(c)
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`of the Securities Act [15 U.S.C. § 77e(c)] provides a similar prohibition against offers to sell or offers
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`to buy, unless a registration statement has been filed or an exemption from registration applies.
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`Thus, Sections 5(a) and 5(c) of the Securities Act prohibit the unregistered offer or sale of securities
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`in interstate commerce absent an exemption.
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`4.
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`The definition of “security” includes a range of investment vehicles, including stocks,
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`bonds, and “investment contracts.” Investment contracts are transactions where an individual
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`invests money in a common enterprise and reasonably expects profits to be derived from the
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`entrepreneurial or managerial efforts of others. In a variety of circumstances, courts have found that
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`investment vehicles other than stocks and bonds constitute investment contracts, including interests
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`in orange groves, animal breeding programs, railroads, airplanes, mobile phones, and enterprises
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`existing only on the Internet. As the Supreme Court of the United States has noted, Congress
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`defined security broadly to embody a “flexible rather than a static principle, one that is capable of
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`adaptation to meet the countless and variable schemes devised by those who seek the use of the
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`money of others on the promise of profits.”
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`5. Kik, a private Canadian company founded in 2009, owns and operates a mobile
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`messaging application called Kik Messenger. Despite Kik Messenger’s initial success and the
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`company’s receipt of venture capital funding, Kik’s costs have always far outpaced its revenues, and
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`the company has never been profitable.
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`6.
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`In late 2016 and early 2017, Kik faced a crisis. Fewer and fewer people were using Kik
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`Messenger. The company expected to run out of cash to fund its operations by the end of 2017, but
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`its revenues were insignificant, and executives had no realistic plan to increase revenues through its
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`existing operations. In late 2016 and early 2017, Kik hired an investment bank to try to sell itself to
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`a larger technology company, but no one was interested.
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`7.
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`Faced with a shrinking financial “runway,” Kik decided to “pivot” to an entirely
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`different business and attempt what a board member called a “hail Mary pass”: Kik would offer and
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`sell one trillion digital tokens in return for cash to fund company operations and a speculative new
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`venture.
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`8.
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`Starting in early 2017, Kik began to devise a plan to offer and sell digital tokens. The
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`plan became public on or about May 25, 2017, when Kik announced the Kin token offering by
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`publishing a “white paper” and issuing press releases, and through a speech by Kik’s Chief
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`Executive Officer (“CEO”) at a blockchain industry conference in Manhattan. Through these and
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`other outlets, Kik enthusiastically described the Kin offering and Kik’s plans to create, develop, and
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`support what Kik called the “Kin Ecosystem,” in which, at an unspecified future date (if the project
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`was successful), Kin could be used to buy goods and services.
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`9.
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`From the initial May 2017 announcement through September 2017, Kik relentlessly
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`pitched Kin and the prospect that Kik’s future efforts to develop the Kin Ecosystem would drive an
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`increase in Kin’s value. Kik emphasized that only a finite number of tokens would be created and
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`that rising demand for the tokens would cause their value to appreciate. Kik promised that it would
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`spur such demand by dedicating company expertise and resources – including proceeds from Kin
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`sales – to specific, Ecosystem-enhancing projects, including: the redesign of Kik Messenger to
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`incorporate Kin; the creation of what Kik called a “rewards engine” to compensate companies that
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`fostered Kin transactions; and the implementation of a new, Kin-specific “transaction service” to
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`address flaws in existing blockchain technology. Kik also assured prospective buyers that, following
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`distribution of the tokens, buyers would be able to trade Kin on secondary trading platforms, often
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`described as “exchanges,” enabling conversion of Kin to either a digital asset (e.g., Bitcoin or Ether)
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`or fiat currency (e.g., U.S. dollars).
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`10. Throughout its Kin promotional campaign, Kik also declared that the company would
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`share with buyers a common interest in profiting from Kin’s success: in addition to selling one
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`trillion tokens through its then-ongoing offering, Kik would create and allocate to itself three trillion
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`Kin tokens over a two-and-a-half-year period. Kik told potential buyers that, by allotting 30 percent
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`of the outstanding supply of Kin to itself, the company would align its financial interests with those
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`of other Kin investors, which would give the company an incentive to take entrepreneurial and
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`managerial steps to increase the demand for the token. And, Kik described Kin as an opportunity
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`for both Kik and early Kin investors to “make a ton of money.”
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`11.
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`Starting with the May 2017 announcement, Kik offered and sold the one trillion Kin
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`tokens in a single offering aimed at both wealthy investors and the general public.
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`12. From May to September 2017, Kik offered and sold tokens to professional investment
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`funds and other select, wealthy investors using purchase agreements that Kik called “Simple
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`Agreements for Future Tokens” or “SAFTs.” Kik’s SAFTs entitled purchasers to the future
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`delivery of the Kin that they purchased when they entered into the agreements. Under the SAFTs,
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`investors bought Kin at a discount to the price that the general public would pay, and Kik promised
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`to deliver the tokens pursuant to a schedule, half at the time that it delivered tokens to the general
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`public and half on the one-year anniversary of the first delivery. Kik’s sale of Kin through these
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`purchase agreements was denominated in U.S. dollars, and Kik raised approximately $49 million.
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`13. From May through September 2017, Kik also offered Kin to the general public and
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`had public investors sign up for this public sale, even while the company was offering and selling
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`discounted Kin to investment funds and other wealthy investors using its SAFTs. Kik’s September
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`2017 sale of Kin to the general public was denominated in Ether, and Kik received approximately
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`$50 million worth of this digital asset.
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`14. On September 26, 2017, Kik delivered to the public investors all of the Kin that they
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`had purchased, and delivered to the investors who bought at a discount through SAFTs half of the
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`tokens they had purchased, pursuant to the contracts’ terms.
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`15. Of the nearly $100 million in cash and Ether received by Kik, over $55 million was
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`raised from United States-based investors.
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`16. Throughout Kik’s 2017 offering and sale of Kin, the decentralized economy that Kik
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`had marketed did not exist. In addition, when Kik distributed Kin on September 26, 2017, no one –
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`not even Kik – offered goods or services in return for Kin.
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`17. On July 25, 2017, approximately seven weeks before Kik started the public sale of
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`Kin, the SEC issued what is often called the “DAO Report.” The DAO Report “advise[d] those
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`who would use . . . distributed ledger or blockchain-enabled means for capital raising, to take
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`appropriate steps to ensure compliance with the U.S. federal securities laws,” and found that digital
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`assets at issue in that matter were securities. Even prior to the DAO Report, however, Kik had been
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`informed by one of its consultants that the Kin offering was, potentially, an offering of securities
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`that needed to be registered with the SEC and that “unregistered public securities offerings are not
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`legal in the U.S.”
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`18. Under the federal securities laws, Kik offered and sold securities from the initial May
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`2017 announcement of Kin through September 2017. But, Kik has never filed with the SEC a
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`registration statement for its offer and sale of securities. By failing to prepare and file a registration
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`Case 1:19-cv-05244-AKH Document 1 Filed 06/04/19 Page 6 of 49
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`statement, Kik did not provide important information to investors regarding the investment
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`opportunity promoted by Kik, such as information about Kik’s current financial condition
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`(including that the company’s expenses far exceeded its revenue), future plans of operation and
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`budget, the proposed use of investor proceeds, and detailed disclosure of material trends and the
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`most significant factors that made the offering speculative and risky. Kik thus failed to disclose
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`information relevant for investors to evaluate Kik’s promises about the investment potential of Kin
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`and the Kin project.
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`19. Kin is currently trading on unregulated trading platforms at about half of the value
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`that public buyers paid in the offering, and, during the intervening period, it has often traded much
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`lower.
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`20. By engaging in the conduct set forth in this Complaint without a registration statement
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`being in effect or filed, Kik has engaged in the unlawful offer and sale of securities in violation of
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`Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a), 77e(c)].
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`21. Unless Kik is permanently restrained and enjoined, it will continue to engage in the
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`acts, practices, and courses of business set forth in this Complaint and in acts, practices, and courses
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`of business of similar type and object.
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`NATURE OF THE PROCEEDING AND RELIEF SOUGHT
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`22. The SEC brings this action pursuant to the authority conferred upon it by Section 20
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`of the Securities Act [15 U.S.C. § 77t(b)].
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`23. The SEC seeks a final judgment: (a) permanently enjoining Kik from engaging in acts,
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`practices, and courses of business alleged herein; (b) ordering Kik to disgorge its ill-gotten gains and
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`to pay prejudgment interest thereon; and (c) imposing civil money penalties on Kik pursuant to
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`Section 20(d) of the Securities Act [15 U.S.C § 77t(d)].
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`Case 1:19-cv-05244-AKH Document 1 Filed 06/04/19 Page 7 of 49
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`JURISDICTION AND VENUE
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`24. This Court has jurisdiction over this action pursuant to Sections 20(b) and 22(a) of the
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`Securities Act [15 U.S.C. §§ 77t(b) and 77v(a)].
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`25. Venue in this district is proper pursuant to Section 22(a) of the Securities Act [15
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`U.S.C. § 77v(a)]. Certain of the transactions, acts, practices, and courses of business constituting the
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`violations alleged herein occurred within the Southern District of New York and elsewhere, and
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`were effected, directly or indirectly, by use of the means or instruments or instrumentalities of
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`transportation or communication in interstate commerce, or of the mails, or the facilities of a
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`national securities exchange.
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`26. Those transactions, acts, practices and courses of business include, but are not limited
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`to: (a) Kik’s office in this district from which Kik employees marketed the Kin offering and worked
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`to create demand for Kin tokens: (b) Kik’s announcement of the Kin offering at a blockchain
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`conference held in this district; (c) Kik’s employees’ travel to and work in the United States to
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`promote the Kin offering, including meetings with potential purchasers, including potential
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`purchasers located within this district; (d) Kik’s retention of consultants located in this district to
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`work on and promote the Kin offering; and (e) Kik’s offers and sales of Kin tokens to purchasers
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`located within in the United States, including in this district.
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`27. Kik has agreed to jurisdiction in the United States concerning disputes relating to Kin.
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`When selling Kin to the general public, Kik required investors to agree that all disputes about the
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`purchase and use of Kin would be heard by an arbitrator or court in the United States, specifically in
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`the State of Delaware.
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`DEFENDANT
`28. Kik Interactive Inc. (“Kik” or “Defendant”) is a privately-held Canadian
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`corporation with headquarters in Waterloo, Ontario, and offices in New York City and Tel Aviv.
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`Case 1:19-cv-05244-AKH Document 1 Filed 06/04/19 Page 8 of 49
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`BACKGROUND ON DIGITAL ASSETS
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`29. An “Initial Coin Offering” or “ICO” is a fundraising event in which an entity offers
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`participants a unique digital asset – often described as a “coin” or “token” – in exchange for
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`consideration (most commonly Bitcoin, Ether, U.S. dollars, or other fiat currency). The tokens are
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`issued and distributed on a “blockchain” or cryptographically secured ledger. Kik’s offer and sale of
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`Kin from May to September 2017, including the sales through SAFTs and to the general public,
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`constituted an ICO.
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`30. A blockchain is a type of distributed ledger or peer-to-peer database that is spread
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`across a network and records all transactions in the network in theoretically unchangeable, digitally-
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`recorded data packages called “blocks.” Each block contains a batch of records of transactions,
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`including a timestamp and a reference to the previous block, so that the blocks together form a
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`chain. The system relies on cryptographic techniques for securely recording transactions. A
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`blockchain can be shared and accessed by anyone with appropriate permissions. Some blockchains
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`can record what are called “smart contracts,” which are, essentially, computer programs designed to
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`execute the terms of a contract when certain triggering conditions are met.
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`31.
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`ICOs are typically announced and promoted online, although other marketing may be
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`employed. Issuers often release a “white paper” describing the project and promoting the ICO,
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`often in highly technical terms and jargon. To participate, investors are generally required to transfer
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`consideration to the issuer’s address, bank account, digital “wallet,” or other account. After the
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`completion of the ICO, the issuer will distribute its tokens to the participants’ unique address on the
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`blockchain. In marketing the Kin ICO, Kik often referred to the public sale and distribution of Kin
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`as the “token distribution event” or the “network launch.”
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`32.
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`Issuers and individuals increasingly have been using blockchain technology in
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`connection with raising capital for businesses and projects. And blockchain-enabled offerings are
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`Case 1:19-cv-05244-AKH Document 1 Filed 06/04/19 Page 9 of 49
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`often targeted at retail investors in the United States and globally. The overall size of the ICO
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`market has grown exponentially. It is reported that more than $20 billion was raised between June
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`2017 and November 2018.
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`33. After the initial sale by an issuer, tokens are sometimes transferred between users or
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`listed on online trading platforms, which are sometimes colloquially referred to as “exchanges,”
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`whereon the tokens trade for other digital assets or fiat currencies.
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`OTHER ENTITY DISCUSSED IN THIS COMPLAINT
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`34. Kin Ecosystem Foundation (“Foundation”) is a non-profit foundation that Kik
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`announced to the public in May 2017 and created under Canadian law on September 12, 2017. The
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`Foundation has had a two-member board of directors since its founding. Initially, the directors were
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`Kik’s CEO and Chief Financial Officer (“CFO”). Since May 2018, the directors have been Kik’s
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`CEO and a long-time Kik consultant. Because Kik’s CEO has always been one of two board
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`members, the Foundation has always needed the CEO’s approval to conduct any business. As
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`discussed further below, the Foundation was created so that it could receive six trillion Kin to
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`distribute in such a way as to compensate – through the so-called “rewards engine” – companies
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`that promote Kin transactions and, therefore, boost participation in the Kin Ecosystem and demand
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`for Kin.
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`FACTS
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`I.
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`IN EARLY 2017, KIK FACED FINANCIAL CRISIS
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`Since its founding in 2009 until its 2017 ICO, Kik raised at least $120 million from
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`35.
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`venture capital investors and a Chinese technology and entertainment conglomerate.
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`36. Prior to the Kin project in 2017, Kik’s only business line was Kik Messenger, a mobile
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`software application or “app,” which lets users communicate with each other using mobile devices.
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`The app had initial success, attracting millions of users around the world, with a significant
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`concentration among teenagers and young adults in the United States.
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`37. After several years, however, Kik’s business faltered. In 2016, Kik Messenger became
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`less and less popular. Daily average users dropped from more than 10 million in January 2016 to
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`about 6 million in January 2017. Monthly average users dropped from more than 28 million in
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`January 2016 to about 20 million in January 2017.
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`38. Kik Messenger had always been difficult for Kik to monetize, and Kik has never
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`generated appreciable revenue and has never been profitable. From mid-2015 to mid-2016, the
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`company recorded $2.2 million in revenue but had total expenses of $29.2 million, and the company
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`experienced a comprehensive loss, before adjustments for income taxes, of $29 million. From mid-
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`2016 to mid-2017, the company recorded $1.5 million in revenue but had $32.3 million in expenses,
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`and the company experienced a comprehensive loss, before adjustments for income taxes, of $32.9
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`million.
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`39. During its early years, Kik Messenger was a competitor of other messaging
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`applications, such as Snapchat and WhatsApp, but the fates of these companies diverged. In 2014,
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`Facebook purchased WhatsApp for approximately $19.3 billion, and, in March 2017, Snapchat
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`conducted an IPO. Kik, however, failed to develop ways to generate revenue through Kik
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`Messenger and failed to find a buyer.
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`40.
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`In or about October 2016, Kik hired an investment bank to identify companies that
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`might buy Kik. The investment bank contacted 35 parties and signed confidentiality agreements
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`with seven companies that wanted additional information about Kik. By February 1, 2017, however,
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`all seven potential suitors had declined to buy or merge with Kik.
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`41. By early 2017, Kik had spent most of its venture capital money and had remaining
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`cash of about $26 million, expending about $3 million a month to support its operations. In early
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`2017, Kik’s executives repeatedly warned the company’s directors about Kik’s financial “runway” –
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`the time by which Kik would run out of money to fund operations under then-current spending
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`levels – and Kik predicted it would run out of cash sometime during the late fall of that year.
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`II. HAVING NO OTHER OPTIONS, KIK “PIVOTED” TO DIGITAL TOKENS
`42. Facing steadily-declining cash reserves and no reasonable prospect of generating
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`meaningful revenues from its current business, Kik’s executives discussed the idea of “pivot[ing]” to
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`digital tokens as “a way to raise capital.” By early 2017, Kik’s senior management had concluded
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`that an ICO was Kik’s only option. One member of Kik’s board of directors, soon after discussions
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`began, described the plan as a “hail Mary pass.”
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`43. From the outset, Kik saw investors and speculators as a crucial target audience for an
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`ICO. For example, in a meeting on February 16, 2017, Kik’s executives and directors discussed the
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`need to craft an offering that would appeal to “cryptoinvestors” and the growing market for
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`“cryptoassets,” highlighting a “50% three-year CAGR [compound annual growth rate]” for such
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`investments. At this meeting, Kik executives and directors anticipated that “Crowdfunders” “would
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`invest in tradable digital tokens of a non-blockchain company if offered good risk-return potential.”
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`44. The timing of Kik’s pivot coincided with a dramatic uptick in the number of ICOs
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`generally. CoinDesk (an online information service focusing on the blockchain industry) reports
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`that in 2017 at least 343 ICOs occurred, up from only 43 the year prior.
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`45. At the February 16, 2017 board meeting, facing a dearth of other options, Kik’s board
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`of directors instructed the executives to assume that Kik would conduct an ICO.
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`46. Following the meeting, in an email to several employees dated February 28, 2017,
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`Kik’s CEO described Kik’s new “crypto story,” which would be “a new way” to raise capital. He
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`wrote that the company would “sell some [tokens] to crypto investors to raise money,” and that
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`“[m]ore demand” for the token would mean “[v]alue goes up” and, therefore: “Buy today, sell
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`tomorrow, profit.”
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`47.
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`Similarly, in a March 24, 2017 email to employees, Kik’s CEO described his “[v]ision”
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`for an offering of tokens (then called “Kik Points”). He explained that Kik’s creation of demand for
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`the tokens in the future would mean that people could buy now at a low price and sell later at a
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`higher price to “creat[e] a return”:
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`[I]f you buy some Kik Points today when the demand is low, then you will be
`able to sell them at a higher price tomorrow when the demand is higher,
`creating a return. This potential return encourages investors to “buy in” at an
`ICO. An ICO is where Kik takes a portion of its reserves from its Fort Knox
`(say 100 million of the 1 billion Kik Points that we initially created and put in
`our Fort Knox) and sells them in an auction. The value proposition to
`investors is that if they buy in today at the ICO, and then the demand for the
`currency goes up because of all the things we do to create demand for them,
`then they will be able to sell their points at a higher price in the future, and
`make a return. The money taken in from investors for the ICO is used by Kik
`to fund development to create more and more demand by both growing the
`community, and by growing the demand for the currency within the
`community.
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`48. During this same time period, Kik began to work with a consulting firm located in
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`New York City to research the market for tokens and other digital assets and to design an ICO.
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`49. The consultant’s research confirmed for Kik that “serious cryptoinvestors globally as
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`well as small VC funds and family offices that are pushing into the space” could, in fact, become
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`interested in adding Kik’s tokens to their existing portfolios of digital assets. The consultant’s
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`research also indicated to Kik that the majority of people who would buy a potential token would do
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`so for investment purposes, rather than to use the token to obtain goods or services.
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`50. On or about April 10, 2017, in advance of a meeting of Kik directors later that same
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`week, Kik’s CEO sent to the directors his PowerPoint presentation for the meeting, entitled “Kik &
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`Cryptocurrency,” together with a report prepared by Kik’s consultant. The materials highlighted
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`results from the consultant’s “Cryptoinvestor Survey” and “Cryptoinvestor Expert Panel” and
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`included a “Funding perspectives” slide showing revenues from average historical token sales and
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`predicted a capital raise of “$100 million easily” from the offering. The materials set forth a
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`“roadmap” for a token sale later that year and included steps for an “investor marketing plan” and
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`an “exchange outreach.”
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`51. During this time, Kik decided to name the new tokens “Kin” and worked with its
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`consultants to design plans for what would eventually be called the “Kin Ecosystem.” Kik also
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`hired other companies in the United States and abroad to help it design and publicize the offering.
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`52.
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`In approximately April 2017, Kik and its New York-based consultants started to draft
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`a “white paper” through which the company would announce the offering of Kin to the public and
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`spur investment.
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`53.
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`In early May 2017, Kik’s CEO told the company’s board that he expected to announce
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`the token offering later that month. From at least this time period through the September 2017
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`public sale, Kik planned a single offering of one trillion tokens, which would raise for Kik about
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`$100 million.
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`54. On May 22, 2017, in advance of a telephonic board of directors meeting the next day,
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`Kik’s CEO sent the directors a PowerPoint presentation with details about the company’s planned
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`offering, which had been fleshed out during the drafting of the white paper.
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`55. The presentation explained that Kik would create a total supply of 10 trillion Kin
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`tokens and offer a “[f]loat” of 10 percent of that supply (i.e., one trillion tokens), with a “Total Raise
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`Target” of $100 million. Kik would then use proceeds from the offering to build the “Kin
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`Ecosystem” and fund company operations. Kik planned to offer the one trillion tokens in multiple
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`“tranches,” with buyers in the earlier tranches committing funds well in advance of a sale of Kin to
`
`the general public in exchange for discounts from the final offering price.
`
`13
`
`

`

`Case 1:19-cv-05244-AKH Document 1 Filed 06/04/19 Page 14 of 49
`
`56. Kik had also decided to sell Kin in one or more of the early tranches by entering into
`
`SAFTs with investment funds and other wealthy investors. As of May 22, 2017, Kik planned to
`
`raise up to $50 million through SAFTs, in what Kik called a “Pre-Sale,” and between $50 million to
`
`$75 million more in what Kik called the “public tranche[s].”
`
`57. The May 22, 2017 presentation summarized Kik’s anticipated sale of Kin as follows:
`
`
`
`
`
`58. The presentation also explained – and Kik’s CEO reiterated during the telephonic call
`
`with Kik’s board the next day – that 30 percent of the total number of tokens created (i.e., three
`
`trillion) would be allocated to Kik under a future vesting schedule, while 60 percent of the total
`
`supply (i.e., six trillion) would be allocated to a new “Kin Foundation” that Kik would establish. By
`
`keeping three trillion Kin, Kik planned to profit from any future appreciation of Kin.
`
`59. Before the May 2017 public announcement, Kik drafted a single “communications
`
`strategy” that would run from the announcement until the “token distribution event” and
`
`encompass both the “Pre-sale” and “Public sale” phases. Kik also planned a single “Investor
`
`Roadshow” that included events in New York City, San Francisco, and abroad. The plan included
`
`14
`
`

`

`Case 1:19-cv-05244-AKH Document 1 Filed 06/04/19 Page 15 of 49
`
`
`
`the public announcement at which Kik would “[d]rive interest and awareness of Kik token sale,”
`
`meetings with venture capitalists, and the token sale itself (then scheduled for July 2017), at which
`
`Kik would “Drive participation in sale” by the “Crypto community.”
`
`60. On or about May 23, 2017, Kik’s board voted to approve the timeline, the allocation
`
`of the ten trillion Kin, the split between a “pre-sale and public sale,” and the white paper.
`
`61. At this time, the Kin Ecosystem did not exist, and there were no services or products
`
`that could be purchased with Kin. The Kin Ecosystem would only come to exist, if at all, after
`
`investors bought in and after Kik spent proceeds of the ICO in its efforts to build the Kin
`
`Ecosystem.
`
`III. KIK PITCHED THE KIN OFFERING BY EMPHASIZING THE OPPORTUNITY TO PROFIT
`
`62. On May 25, 2017, Kik’s CEO spoke in New York City at the Token Summit, a
`
`conference for people interested in digital assets, and publicly announced its offering of Kin tokens.
`
`Kik chose the Token Summit because, as a Kik executive observed, “the primary audience for the
`
`initial announcement really is an investor community,” and such investors were expected to be in
`
`attendance. The presentation was videotaped and posted by Kik on YouTube, making it accessible
`
`to anyone on the Internet.
`
`63. Also on May 25, 2017, in coordination with the Token Summit presentation, Kik’s
`
`CEO appeared on CNBC, and Kik published on social media and other Internet sites various
`
`statements and documents that described the Kin offering, including, but not limited to, (a) Kik’s
`
`white paper; (b) a post by Kik’s CEO on Medium (an online publishing platform); (c) a press release
`
`entitled “Kik to Integrate Kin Tokens as First Mainstream Adoption of Cryptocurrency”; (d)
`
`another press release entitled “Announcing Kin, cryptocurrency for an open future”; and (e) a
`
`professionally produced video that Kik posted on YouTube.
`
`15
`
`

`

`Case 1:19-cv-05244-AKH Document 1 Filed 06/04/19 Page 16 of 49
`
`
`
`64. These public statements repeated and expanded upon Kik’s Token Summit
`
`presentation. Kik provided information on the amount of Kin to be sold and invited interested
`
`investors to sign up for alerts and information on Kik’s website.
`
`65. The public statements – along with subsequent statements throughout the offering –
`
`highlighted Kik’s vision that it would profit alongside other Kin investors, because the value of Kin
`
`held by both Kik and outside investors would increase as Kik helped increase demand for Kin. For
`
`example, during his May 25, 2017 CNBC appearance, Kik’s CEO stated:
`
`You are just bringing people together, creating a place where they can create
`value for each other transacting in a new cryptocurrency. And that alone is
`enough to make a great financial return. . . . . . How that makes money for
`Kik is that we create a new cryptocurrency such that there is only going to be
`so much of it. We set some aside for us such that if more and more people
`transact in the cryptocurrency, the value of it grows such that the value of our
`holdings grow as well.
`
`66. Kik’s CEO also touted the initial success of Kik Messenger and the company’s
`
`experience when assuring viewers that Kik would take steps to stimulate demand for Kin and,
`
`therefore, increase its value. For instance, Kik promised to start by integrating Kin into Kik
`
`Messenger “to really give it value.” One of Kik’s press releases further explained that the company
`
`would create a “rewards engine” – which did not then exist – that would daily distribute Kin to
`
`developers to give them an incentive to create more Kin-related transactions, there

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