The US Securities and Exchange Commission has taken Kik Interactive Inc to court for conducting an illegal $100 million retail securities offering of digital tokens. It is arguing that Kik sold the tokens to US HNW investors without registering their offer and sale as required by law.

Most ICOs nowadays are sold to private placements, consisting especially of HNW individuals, and to a lesser extent of institutions. Indeed, it is a commonplace for such an enterprise to rely heavily on the HNW market at first, before broadening its base of investors. Such HNW investors are sometimes called "the crypto-affluent."

The SEC’s complaint states that Kik had been losing money for years on its sole product, an online messaging application, when its management predicted (although not in public) that it would run out of money in 2017 and resolved to do something about it. In the early part of that year, the company began to turn to a new type of business which it financed through the sale of one trillion digital tokens. Kik sold its 'Kin' tokens to the American general public, and at a discounted price to wealthy purchasers, raising more than $55 million. The complaint alleges that Kin tokens were trading recently at about half the value that public investors paid in the offering.

The complaint further alleges that Kik marketed the Kin tokens as an investment opportunity. Kik allegedly told HNW investors that rising demand would drive up the value of Kin and that Kik would try its utmost to push up demand by incorporating the tokens into its messaging app, by creating a new Kin transaction service and by building a system to reward other companies that adopt Kin. At the time when Kik offered and sold the tokens, the SEC alleges that these services and systems did not exist and there was nothing to purchase using Kin. ik also allegedly claimed that it would keep three trillion Kin tokens, that Kin tokens would immediately trade on secondary markets, and that Kik would profit alongside investors from the greater demand that all this would cause. The Kin offering, says the SEC, involved securities transactions that were subject to the securities laws.

The regulator claims that by selling $100 million in securities without registering the offers or sales, as demanded by s5 Securities Act 1933, Kik deprived investors of information to which they were legally entitled. It is asking the court for a permanent injunction, disgorgement plus interest, and a penalty. It has previously charged issuers such as Munchee Inc, Gladius Network LLC, Paragon Coin Inc and CarrierEQ Inc, t/a Airfox. It settled all cases.