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SEC

Video shows Kik CEO discussing ICO pre-sale: “It will become super valuable”

Quick Take

  • A video from 2017 shows Kik’s CEO Ted Livingston discussing the Kin token, which is now at the centre of a court showdown with the SEC
  • Livingston talked about the potential of “awesome” returns if Kin’s price rose and pushing a detailed use-case for it
  • The contentious debate of ‘utility token vs security’ continues.

Ted Livingston, the CEO of unicorn-valued social media startup Kik, announced this week he would fight the SEC’s claim Kin tokens qualify as an unregistered security. The SEC issued a Wells notice, documenting their intention to sue Kik, and in response, the company became one of the first to defend its offering of an ERC-20 token, in court.

As Livingston steps into battle, it’s worth looking back at the CEO’s public statements prior to the ICO in 2017, which raked in $98 million. In particular, a video from a Q&A event with the CEO recorded months before the token sale shows Livingston making statements seemingly at odds with some of the comments he is making today.

The extracts below are taken directly from the video footage. 

“Will these [tokens] be considered securities under US federal law?”

At one point in the video, an audience member directly asks this question.

Livingston responded, half-joking: “Turn the cameras off. That’s going to haunt me one day. I hope not. Ooh, I’m already picturing it”

He goes on: “Honestly, part of that is…making sure there is utility…There’s huge utility for this. I don’t think that’s a question… I also just sort of fundamentally, philosophically don’t think this is a security. A security is, you own a piece of a revenue-generating entity. Future dividends is where it came from, etc. whereas here it’s like you just literally own an asset, and if demand for that asset goes to zero, then the value of that portion of the asset you hold also goes to zero.”

Stephen Palley, a U.S. lawyer based in Washington D.C. and a contributor to The Block, said in an interview that Livingston’s response did “not really show awareness of what constitutes a security.” Under the well-known Howey test, a security is an “investment of money in a common enterprise with an expectation of profits solely from the efforts of the promoter or a third party,” said Palley. Meanwhile, while the token’s “utility” might be relevant, it is hardly the only relevant fact.

Livingston may have been treading a close line when it came to price prediction

Essentially, the Howey test assesses whether there was an expectation of profit. Today, the company says “Kik did not offer or promote Kin as a passive investment opportunity,”  as outlined by their lawyers in the Wells letter response.

In the video, Livingston can be heard saying:

“We’re gonna put [kin] inside Kik and it will become super valuable on day one, we think.”

Billion dollar asset, right? We’re rolling it in and that’s the exciting thing is, can you build a community this big without a lot of investment? No. I got to convince my investors and convince myself.”

If kin were as popular as ether were today, that 30% [of company-held tokens] would be worth 9 billion dollars, that’s awesome. We’d give some back to [investors]. You invested $50 million, maybe we’ll give you $500 million out of that $9 billion.”

“We are using kik to boost the value of kin.”

“You win, you make more money, we win, we have that 30% but then we both win because we can both ride the upside of it.”

“If those are places that you can earn and spend Kik, and more and more people are earning and spending in more and more ways, the value is gonna go up. The value of our 30% is gonna go up.”

“And the coolest thing about it is, the Kin Reward Engine gives away kin every day, and so as the value of kin goes up, the value of this daily reward also goes up…There will always be something getting paid out, less and less [Kin over time] with higher and higher prices.”

As the quotes above show, Livingston did appear to believe that the price of Kin would depend on the success of Kik, which might be contrary to arguments made today. Indeed, prior to the sale – and indeed since – questions have been raised over why a firm with substantial venture capital (and an existing platform) was using an ICO to raise funds.

Livingston warned against endless returns and provided a detailed use case for the token

Nonetheless, Livingston also offered the audience some disclaimers – the grounds on which he is fighting the SEC today.

“We cannot guarantee the value of kin,” he said, adding “If demand goes away, the value goes away. You don’t own a piece of any entity. You own a piece of an asset.” 

Livingston also discussed at length in the video how Kin would be utilised as a currency on the Kik platform for emojis, stickers, and participating in group chats – and ideally, beyond the Kik app. Developers could also earn Kins by building chatbots, rewarded by the Kin Foundation.

Today, their lawyers say the company marketed Kin exclusively “as a way to participate in a fundamentally new way for consumers to access digital products and services, and for innovative developers, and their users, to be compensated for the value they provide.”

Still, the platform already had Kik points, which operated similarly, but were scrapped after the ICO – replaced by Kin. 

Whether the video will in fact “haunt” Livingston remains to be seen, but it may well be a statement that the SEC will be interested in evaluating.

Livingston could not be reached for comment at time of publication.