The 2017 wave of cryptocurrency ICOs was stopped in its tracks by an aggressive approach by the SEC, which launched a wave of subpoenas and lawsuits against companies involved in them. The U.S. Securities and Exchanges Commission accused ICOs of selling ‘securities’, in violation of securities laws in the USA. Even if ICOs were not directly marketed to U.S. citizens or residents, they were vulnerable to pursuit by the SEC if they touched any U.S.-owned or domiciled part of financial services infrastructure.

Canadian messaging app Kik launched an ICO in 2017, raising $100 million through the sale of 1 trillion digital ‘Kin’ tokens. In June of this year the SEC announced that it was suing Kik for failing to register what it claims was a securities offering with the regulator. It claims Kik marketed the digital tokens as an ‘investment opportunity’, motivated by the need to fill a serious funding shortfall. Kik posted expenses of $32.3 million for the period between mid-2016 and mid-2017 against revenues of just $1.5 million.

However, Kik has not taken the SEC’s move lying down and is fighting the case brought against it. This week the technology company filed an official rebuttal of the SEC case against it. The strongly worded 131-page response accuses the SEC of ‘a consistent effort to twist the facts’ it has built its case on.

Kik’s argument is that its Kin digital tokens, which are spent on its platform only and either purchased or earned by users by watching ads or completing surveys, were defined by a consultant as a ‘community currency’, which did not meet the definition of a security. Kik also accuses the SEC of ‘selectively quoting’ its CEO Ted Livingston in a way that manipulated things he had said out of context and failing to include warnings be clearly made around the fact no guarantees could be offered on the future value of Kin tokens.

However, the significance of the case is set to be far greater than one ICO issuer standing its ground against the SEC. It is being seen as an ‘acid test’ of the SEC position that almost all digital tokens fall under its definition of securities. Facebook, another social media company planning to launch its own cryptocurrency will be watching with particular interest. It is trying to determine whether or not its Libra cryptocurrency will have to be regulated as a security or not.

Kik are leveraging the wider significance of their legal battle with the SEC to the cryptocurrency sector by asking for digital asset donations to the cost of its defence via its defendcrypto.org campaign.