When Kik's user base began to shrink in 2017 and the company started running out of money, it launched an ICO -- an initial coin offering. This is where investors receive digital tokens instead of traditional stock. Kik called its tokens "Kin." But, according to the SEC, Kik's offer and sale of Kin was not registered with the SEC, which considers tokens (with the exception of Bitcoin and ether) to be essentially securities. Furthermore, the SEC says Kik should have revealed the troubled state of its finances to potential investors, which it did not.
Court filings state that the SEC -- which recently approved a stock exchange for tech startups -- is seeking unspecified monetary penalties, alleging that Kik knew its ICO would be considered a securities offering. Kin has since launched a crowdfunding site, DefendCrypto.org, to raise money to fight the SEC's claims, which it says "set a dangerous precedent and stifle innovation." The SEC's co-head of enforcement, Steven Peikin, counters that "companies do not face a binary choice between innovation and compliance with the federal securities laws."