Right when everything seemed to be going well between the United States Securities and Exchanges Commission [SEC] and the cryptocurrency space, the SEC released a press statement on charging Kik Interactive Inc. for issuing a token, Kin, without registering it as a securities offering. The SEC also pointed out that the $100 million securities offering took place six weeks after the commission released The DAO report, advising issuers to comply with the securities law.
Robert A. Chen, the Chief of the Enforcement Division’s Cyber Unit remarked,
“Kik told investors they could expect profits from its effort to create a digital ecosystem. Future profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities laws.”
The press release briefly explained all the stance taken by the commission to sue Kik Interactive. The commission “alleges” that Kik was incurring a loss for years on its messaging app, with the firm’s management “predict[ing] internally that it would run out of money in 2017.” Following this, the firm raised money via the sale of one trillion Kin tokens, $100 million in cash and Ethereum out which, $55 million was raised from U.S investors.
The press release stated,
“The complaint alleges that Kin tokens traded recently at about half of the value that public investors paid in the offering. The complaint further alleges that Kik marketed the Kin tokens as an investment opportunity.”
This was followed by the commission stating that Kik “allegedly told investors” that the value of the token would increase with the demand while promising to do the groundwork to ensure an increase in its demand. This includes integrating the token on the messaging app, paving the way for transaction service and introducing a reward system that would incentivize companies adopting the token.
The commission also “alleges” that the firm did not have these services when it offered the sale of these tokens to investors, adding that “there was nothing to purchase using Kin”. Other allegations include enlisting the coin on exchanges/ secondary markets for trading purpose, and “Kik would profit alongside investors from the increased demand that it would foster.” More so, the commission also highlighted that the value of the token has seen a significant decrease in comparison to its value during the token sale.
Steven Peikin, the co-director of the SEC’s Division of Enforcement stated,
“By selling $100 million in securities without registering the offers or sales, we allege that Kik deprived investors of information to which they were legally entitled, and prevented investors from making informed investment decisions. Companies do not face a binary choice between innovation and compliance with the federal securities laws.”
Stephen D Palley, a well-known lawyer in the cryptocurrency space stated,
“SEC v. KIK: One of the challenges inherent in defending an SEC investigations is that they give the commission the ability to do significant discovery before filing a lawsuit, as this one shows. If you poke the bear better have bear proof arguments to muster in response.
Interestingly, this announcement from the commission comes in days after Kin Foundation announced the launch of Defend Crypto initiative, where the foundation raised around $5 million. The sole purpose of this initiative was to get better regulatory clarity from the SEC in terms of the classification of security tokens.
Crypto Futures Giant Fight Continues: BitMEX Blames Binance For Copying (Take Two)
The plagiarism saga between BitMEX and Binance, perhaps the two most prominent cryptocurrency exchanges in today’s market, keeps going with full force. After Changpeng Zhao tweeted that a certain market maker has tried to attack their futures platform and no one got liquidated because of their “innovation”, citing their liquidation policy, the CEO of BitMEX, Arthur Hayes, responded immediately that he’d give him a Copy/Paste course for 51% of his equity.
BitMEX’s Arthur Hayes Strikes Again
Earlier today, the CEO of the world’s leading cryptocurrency exchange, Changpeng Zhao, revealed that their relatively new futures platform was under attack by a market maker. Fortunately, however, no one got liquidated.
Zhao revealed that the reason for this is that they “use the index price (not futures prices) for liquidations,” calling this methodology their “innovation.”
What followed was a wave of comments that this is, by no means, Binance’s innovation as BitMEX has had its liquidations tied to the index price for a long time.
Naturally, the CEO of BitMEX, being the persona that he is, didn’t wait for too much to comment on the matter.
Zhao responded to his tweet, saying that his tweet was, indeed, misleading “in the way it was written.” He explained that he didn’t mean to call the index price liquidation methodology their innovation.
Not so long after that, the official Twitter account of BitMEX posted that it’s “great to see traders on other exchanges being protected and benefitting from our innovation.” Regardless of the intention, this tweet definitely seems particularly targeted.
How It All Started
The entire back-and-forth tweet exchange between two of the most prominent individuals in the entire cryptocurrency space, namely Arthur Hayes and Changpeng Zhao, began earlier this month.
As Binance announced the launch of two futures testnet platforms and acquired a crypto-asset derivatives platform, intending to launch cryptocurrency futures, options, and other derivatives, it also created a separate page on Auto Deleveraging.
As it turned out, however, the content within that page was entirely plagiarized by the same page which already existed on BitMEX.
Back then, Zhao said that he is sorry about this mistake and that it has been missed in the due-diligence process before the acquisition of the derivatives platform.
Regardless of whether or not the face-off between Hayes and Zhao has any actual implications on the market, it’s definitely refreshing and, as one user had pointed out, it takes some of the attention away from the constantly ongoing Bitcoin v. Ethereum debate.
Reddit Investigation Reveals Scope of Manipulation within Online Crypto Communities
A Reddit user by the name /CryptoMaximalist recently revealed the results of an investigation into manipulation within the online cryptocurrency community. The investigation looked into how a group of certain users has been hijacking threads in the r/CryptoCurrency and r/CryptoMarkets subreddits to promote and shill specific products and projects.
Manipulation, shilling, and self-promotion are no strangers to the cryptocurrency industry so many will not be surprised by the news, but the investigation gives some interesting insight into the scope of these activities and how they are conducted. Throughout the investigation, the user managed to uncover 50 Reddit accounts which he dubbed the “Dream Network”. These accounts appear to be working together to perform specific types of manipulation known as Astroturfing and Vote Manipulation.
Vote Manipulation is relatively self-explanatory, and Astroturfing is the act of making the promotion of a specific project look natural and organic – when in fact the users promoting the project are all involved in the scam. In order to make a project look legitimate, several users will begin long and detailed comment threats featuring questions, answers, and discussions that all appear to come from separate individuals with their own opinions. While they may appear to be separate accounts, often the questions and responses are all instigated by the same person in real life or have been agreed upon beforehand.
Several big projects implicated
Crypto projects that have been implicated in the manipulation include Ontology, Bitmax, Ultra Token, OOOBTC, MOAC, Contentos, and Dreamr, amongst others. While it is not conclusive that the operators of these projects elicited the manipulative behavior, it makes sense that those conducting the manipulation stand to make a profit from the success of the project.
To discover which accounts are likely involved in manipulation the investigation looked into the historical behavior of the accounts. Many were found to have long periods of inactivity followed by a sudden change in personality – indicating the account had likely been sold to a ‘shill‘. Shills will often buy existing accounts with high karma and a long history so that they appear more authentic. Other questionable behavior includes ‘karma farming’ – posting comments in popular threads like r/aww that typically accrue karma with very little effort.
As mentioned above, manipulation is not exactly a new concept in cryptocurrency, but hopefully, this investigation will help some newbies not lose money by investing in rubbish ‘pump n dump’ schemes.
Blockstack’s SEC-Regulated Crypto Token Offering Successfully Raises $23 Million
Blockstack, the first SEC-regulated token offering, successfully raises $23 million in two stages – the SEC regulated and the international offering including Asia’s strategic rounds.
The first US Securities exchange commission (SEC) regulated token offering, Blockstack, completed yesterday successfully raising $23 million USD in the process. The official announcement by the CEO and co-founder of Blockstack, Muneeb Ali, further confirmed the company is looking for a further $5million+ from international investors. The international investors will be offered tokens in a private placement or an SEC-regulated token offering again.
The total stats for the Stacks (STX) token stands at 74 million tokens disbursed at a price between $0.12 and $0.30 USD in the past 60 days. The tokens were offered in two batches – the first one, the SEC approved token under Regulation A+ and the second, the international token offering under regulation S – raising $15.5 million and $7.5 million respectively.
The report reads,
“We want to thank the thousands of you that have participated. For the first time, retail investors in the United States were able to participate in a token offering qualified by the SEC. More than 4,500 individuals and entities participated in the 2019 token offerings.”
Some of the top investors in the token offering includes, Union Square Ventures, Lux Capital, Recruit Holdings, Arrington Capital, Hashkey Group, Fenbushi Capital, Frontier Ventures, Spartan Group, and other funds.
More On The SEC-Regulated Stacks (STX) Token
Earlier in June, BEG reported the SEC had given Blockstacks the go ahead to offer their tokens to the public under certain regulations. The regulations are less stringent than those of a regular IPO, requiring less disclosure of details. The fork to distribute the tokens will commence in the next 30 days and continue for a further 30 days if need be.
Once the token offering and release period is over (in the next 30 days or so) the company will start building and developing its Blockstack decentralized computing network. The announcement further confirmed US exchanges will not list the STX token and US traders will not be able to access trading of the token once it launches this October.