The US Securities and Exchange Commission (SEC) said Kik's defense last August against its initial offer of $ 100 million (OIC) was "unsustainable" and asks the judges to launch it.
A discovery petition filed on Monday also raised issues, following the SEC's 49-page filing on Friday – the last piece of a legal chess match with vast potential ramifications for the chips' right and securities, and another aimed at more accurately determining whether the 2017 Kik ILO was lawful.
In Friday's filing, the SEC ridiculed Kik's defense that vagueness prevented him from any legal trouble:
"This defense asserts that, despite more than 70 years of well-established case law, the term" investment contract "in securities legislation is meaningless if applied to Kik's investment plan. This request is unsustainable and should be rejected. "
Kik has bet the farm on an affirmative defense "empty for inaccuracies" and wants to dismiss senior officials of the SEC to prove that the regulator was not able, in 2017, to give clear guidance on sales symbolic.
Rebecca Rettig, a Fisher Broyles partner, told CoinDesk:
"Kik obviously uses the void for the defense of imprecision as a way to try to take a look behind the curtain at the SEC to determine if the SEC really had a plan from the start . "
In the same discovery, however, the SEC argued that Kik's affirmative defense lacked a legal basis. The regulator linked their argument to Friday's writing of the "vacuum for the wave" issue, arguing that Kik's testimony motions "should be overturned".
If the judges agree, Rettig says the SEC "kills two birds with a stone".
What's an investment contract, anyway?
The quarrel of the SEC with Kik is more than semantic. This engenders decades of legal wrangling over what constitutes an "investment contract". Kik says that the imprecision prevents him from applying to their sale; the SEC says the opposite.
But what is an investment contract?
Investment contracts are not defined in Section 5 of the Securities Act of 1933 – the backbone of US securities law. However, in the 1946 Supreme Court case, SEC v. Howey, the judges have established a legal framework for expression.
They created what is called the "Howey test". If a transaction invests in a joint venture (that is, a business) in the hope of making a profit primarily through the efforts of other companies, it is an investment contract. And so: a security. And therefore: this falls within the scope of the SEC.
In its June complaint initiating this legal saga, the SEC asserted that KIK's OI 2017 was an investment contract sale and was therefore within the regulatory mandate of the organization. They also claimed that Kik's executives knew the sale would grab the attention of the SEC – even before the ICO's public announcement.
In August, Kik argued the opposite. Denying that their chips are "investment contracts", Kik said the term did not apply to their international product organization, which would be counter-productive because its vagueness made it unconstitutional:
"With regard to the offer and sale of Kin Kik in 2017, the definition of" investment contract "(as requested by the Commission) is extremely vague and leaves the Commission free to proceed with a arbitrary and discriminatory execution in this space. "
Empty for inaccuracy
Kik's affirmative defense – and the SEC's recent response – raises questions as to whether the doctrine of the "vagueness law" of US constitutional law applies here. "No one for imprecision" is the doctrine that laws should not be indecipherable to "ordinary" people, nor encourage "arbitrary and discriminatory application."
In other words, the laws must be easy to understand and precise enough not to apply to everything under the sun. Fail one or both of the bars, and a court may declare the law "void for vagueness" and strike it off.
The SEC argued that this may not be important in a commercial context, citing the 1982 Supreme Court decision in Village of Hoffman Estates v. The United States. Flipside, Hoffman Estates, Inc.
"Economic (electronic) regulation is subject to less stringent vagueness, because its purpose is often narrower and because companies, which face economic imperatives to plan their behavior carefully, can consult the relevant legislation before acting ".
In his August defense, Kik claimed that they had not "sufficiently informed" that the SEC would consider Kin to be an "investment contract".
The SEC, however, says this is not the case. The DAO report was published in July 2017, two months before Kik's AIT in September 2017, establishing the basic rules for chain investment contracts and "thus providing Kik with sufficient constitutional advice for Kiker to violate the securities law ".
Rettig said the SEC was seeing its DAO report on digital asset titles released by DAO in July 2017 drawing a "dividing line" for ICO issuers, Rettig said.
"The SEC said that DAO was the line: we released its report and after, all players in the digital asset industry are warned that if they issued tokens, they'd better do a Howey analysis and to make sure that they were not investment contracts. . You, Kik, did not do that, so you broke section 5 of the Securities Act. "
What happens next?
Until the court decides on these arguments and on the case, these legal round trips are only jousts.
A decision could take weeks or even months, lawyers said. And it took years for the SEC to continue its actions against token sales, Kik said, claiming that the ICOs for the wild west of 2016 and 2017 "had contributed to the confusion" of this case.
Kik's strategy is to force a long process of discovery with depositions from a range of SEC officials; they argue that the documents and statements are relevant to the affirmative defense of vague assertion.
Conversely, the SEC argues that their discovery applications are moot, cover privileged documents, and that the affected officials are generally exempt from filing.
Kik's attorneys did not respond to requests for comment on Tuesday.