The Blockchain Association filed an amicus brief on Friday in the Securities and Exchange Commission’s (SEC) lawsuit against Kik in a federal court in New York.
The Blockchain Association’s brief urges the court to deny the SEC’s motion for summary judgment, in which the SEC argues that Kik’s sale of kin tokens to the public, as well as Kik’s pre-sale contracts with accredited investors, violated U.S. securities law. The Blockchain Association also urges the Court to ensure that its ruling is narrowly tailored to avoid casting doubt on other cryptocurrency projects.
The Blockchain Association’s brief argues that Kik’s pre-sale model — entering into investment contracts with accredited investors under the exemption set forth in Regulation D — is consistent with SEC rules and guidance, and is not part of an integrated scheme to distribute unregistered securities to the public. The brief explains that the SEC’s position in this case contradicts its prior public statements that encouraged adoption of this type of pre-sale model.
The SEC’s position, the Association argues, conflates the pre-sale investment contracts with the Kin tokens sold to the public. SEC Commissioner Hester Peirce has explained that “conflating the two concepts [of the investment contract and the underlying asset] has limited secondary trading and has had disastrous consequences for the ability of token networks to become functional.”
The court could be one of the first to decide the important question of whether and when a digital asset is a security. The lack of regulatory clarity on this issue in the U.S. has already stifled innovation and pushed projects overseas.
The Blockchain Association’s brief is available here.