Blockchain Legal Resource

In a closely-watched case, on September 30, 2020, federal judge Alvin Hellerstein ruled that Kik’s $100 million two-phase coin offering resulted in a sale of unregistered securities in violation of Section 5 of the US Securities Act of 1933.  Kik raised approximately $50 million through an initial private pre-sale effected via a Simple Agreement for Future Token, or SAFT, and the remainder through a subsequent public offering of the Kin token.  Concluding that the two-phase offering constituted a single offering, Judge Hellerstein found that Kik’s offering created a security subject to federal securities laws.  Specifically, the court found that Kik met the so-called Howey test because Kik planned to use the proceeds from the offering to fund Kik’s operations and buyers of Kin had a reasonable expectation of profit from their purchase.

On March 24, 2020, federal Judge P. Kevin Castel issued a long-anticipated opinion in the SEC’s ongoing efforts to block Telegram’s $1.7 billion initial coin offering. Judge Castel found that Telegram’s planned distribution of Gram tokens constitutes a securities offering under federal law for which no exemption from registration is available. He therefore granted the SEC a preliminary injunction blocking Telegram from distributing its Gram tokens to investors.

As has been widely reported, SEC Commissioner Hester Peirce (aka “Crypto Mom”) recently delivered a thoughtful speech entitled “Running on Empty: A Proposal to Fill the Gap Between Regulation and Decentralization,” including with it a model rule on digital token sales. The model rule has made waves in the crypto community because it proposes a three-year safe harbor from SEC registration while a development team builds out a functional, decentralized network.