In brief
- Telegram’s $1.7 billion crypto project collapsed back in May following an SEC lawsuit.
- The SEC, invoking Telegram, sought a summary judgement yesterday against Kik for its $100 million ICO.
- The judge presiding over SEC v Kik, however, said the issues at play for Kik and Telegram are different.
When Telegram’s ambitious $1.7 billion crypto project collapsed in May, people pronounced the death of the “SAFT.” Called a Simple Agreement for Future Tokens, the SAFT was a type of ICO designed to raise startup funds through the sale of blockchain-based tokens while staying within US securities laws.
It was a smart idea: sell investors the right to future tokens, so that when the network eventually launched and the tokens distributed, the tokens would no longer be securities. Then, the SEC took Telegram to the courts and blocked the project, forcing the company to return most of the money to investors.
The SAFT, it seemed, was dead.
Another nail in the coffin for SAFT?
A ruling Tuesday against Telegram may be the death knell for SAFT—the “simple agreement for future tokens”—a once popular idea for launching an initial coin offering. That’s according to what Gary Gensler, former Commodity Futures Trading Commission chairman, told Decrypt Wednesday. In a wide-ranging interview, Gensler, who now lectures at MIT’s Sloan School of Management, said he believes the federal court ruling means the SAFT construct won’t spare companies from securities laws. And a token s...
And that would spell bad news for Kik, another messenger app that the SEC is raking over the coals for an ICO that similarly used a SAFT. The SEC alleges that the 2017 token sale for Kik’s own crypto play, Kin, which raised $100 million, was an unregistered securities offering, and that the SAFT didn’t change squat.
And during a dial-in hearing yesterday in which lawyers for the SEC and for Kik traded jabs in oral arguments, the SEC invoked the Telegram to plead its case.
Judge Alvin Hellerstein, however, responded by saying that two cases present different issues—perhaps Kik’s fate isn’t sealed after all.
"I understand that Judge Castel's [the judge that presided over Telegram’s case] decision has a lot of reasoning that is comfortable to you,” Judge Hellerstein told the SEC’s lawyers. “Very well-reasoned decision, characteristic of Judge Castel, but I think our issues are different.”
Castel had said that the SEC had shown “a substantial likelihood of success” in proving that Telegram had sold Grams to speculators—a hallmark of a security. Judge Hellerstein noted, however, that this alone isn’t enough to grant SEC’s motion for summary judgment against Kik. (Telegram, after all, settled its lawsuit with the SEC without admitting or denying the charges.)
SEC v Kik will end with certainty, but will it bring clarity?
It’s been billed as the cryptocurrency trial of the century—the mother of all digital-asset disputes. And the outcome could determine the future of token-based fundraising, as well as the fate of hundreds of ICO-funded startups with coins already in the wild. The U.S. Securities and Exchange Commission filed suit against the Canada-based messaging app company Kik on Tuesday over its 2017 ICO, which the SEC claims raised nearly $100 million in an “illegal securities offering of digital tokens.” A...
"I think that there is no binding precedent on me one way or another," said Judge Hellerstein. In other words, Telegram’s demise isn’t necessarily Kik’s.
Hellerstein didn’t decide the case there and then. He’ll either throw it out or schedule a full trial. Either way, it could be a while longer before Kik’s stand to “defend crypto” meets its end.
