b'SEC SETTLEMENTS AND ENFORCEMENT ACTIONS GOODWINmarket digital asset trading platforms and tellingbusinessselling tokens called Kin. Kik allegedly prospective ENG Token investors of those efforts. conducted an ICO in early 2017 in which it sold more Applying the test set forth inSEC v. W.J. Howey Co.,than US $55 million worth of Kin. Including subsequent the SEC found that ENG Tokens were securities andsales, Kik allegedly sold one trillion Kin and raised that the sale of those tokens was an unregisteredproceeds worth approximately US $100 million without securities offering. First, the SEC found that ENGregistration under the Securities Act or the Exchange Token purchasers invested money that was pooledAct. At the time of filing, Kin allegedly traded on and funded the development of the Enigma Protocol,unregulated trading platforms at approximately half of Catalyst, and the Enigma DataMarketplace. Second,the ICO value.the SEC found that ENG Token purchasers had aThe SEC moved for summary judgment on two principal reasonable expectation of profits and relied on thegrounds. First, the SEC argued that Kiks offer and sale of efforts of Enigma for a return on their investmentsKin was an offer and sale of investment contracts under because (1) Enigma represented to purchasers thatthe test set forth inSEC v. W.J. Howey Co. because, they were entering into agreements to purchasewhen investors bought Kin in 2017 using U.S. dollars ENG Tokens with the expectation that they wouldor digital assets convertible to U.S. dollars, they were profit upon the successful development and launchinvesting in a common venture and reasonably expected of the Enigma Protocol, Catalyst, and the Enigmaprofits derived from the entrepreneurial or managerial DataMarketplace arising from the efforts of Enigmaefforts of Kik. Specifically, Kik conducted a four-month and its employees to develop and market thosemarketing campaign and multi-city roadshow; touted products and the related sale of ENG Tokens and its entrepreneurial and technological experience, its (2) there was no consumptive use for ENG Tokens atmanagerial expertise and capability, and Messengers the time of sale or delivery. The SEC also found thatlarge user base; promised to create a Kin Ecosystem of Enigma sold ENG Tokens without qualifying for ancomputer programs and applications in which investors exemption from the registration requirements. would be able to use and spend Kin; described actions that Kik would take using sale proceeds to develop, U.S. Securities and Exchange Commission v. improve, and create value in that new Kin Ecosystem Kik Interactive, Inc., No. 19-cv-5244 and to increase the market value of Kin; said that Kik (S.D.N.Y. Mar. 20, 2020) had an incentive to make the Kin Ecosystem successful because of Kiks large stake in Kin; and described Kin On March 20, 2020, the SEC and Kik Interactive Inc.as an opportunity for both Kik and early Kin investors to (Kik) both filed motions for summary judgment in anmake a lot of money.SEC enforcement action pending in the U.S. DistrictSecond, the SEC argued that the portion of the ICO Court for the Southern District of New York. The SEC(approximately half of the US $100 million in proceeds) filed the enforcement action on June 4, 2019, fordirected toward wealthy purchasers who entered violations of Sections 5(a) and 5(c) of the Securitiescontracts with Kik and received Kin at a discounted Act for the sale of unregistered securities. The SECprice were not exempt from the Securities Acts seeks a permanent injunction, disgorgement of all ill- registration requirement under SEC Rule 506(c), gotten gains or unjust enrichment (with pre-judgmentwhich was designed exclusively for sales of securities interest), and a monetary penalty. to accredited investors as the end-recipients. In Kik is a company that owned and developed an onlineparticular, the portion of Kiks offering sold through messaging platform called Kik Messenger. In latethose contracts did not constitute a private exempt 2016 and early 2017, Kiks more traditional sourcesoffering but rather was part of a public offering for of investment and venture capital funding allegedlywhich registration was required; even if the two dwindled and Kik allegedly faced the prospect ofportions of Kiks offering were to be treated as separate running out of cash to fund operations by the end ofofferings, those two portions should be integrated 2017. Kik allegedly decided to pivot to an entirely newand considered one offering under SEC rules; and 12'