Earlier this year, Liz blogged about an SEC enforcement action targeting the “Simple Agreement for Future Tokens,” a once popular method of structuring crypto-financings that was intended to avoid securities law compliance issues. Well, it obviously didn’t, and if one SEC enforcement proceeding wasn’t enough to drive that message home, this Brian Cave memo discusses a second one:
On September 30, 2020, Judge Alvin Hellerstein, of the Southern District of New York granted summary judgment to the Securities and Exchange Commission in its enforcement action against Kik Interactive Inc., in which the SEC contended that Kik’s 2017 $100 million Initial Coin Offering was an unregistered securities offering. The Kik decision marks the second time this year that a federal judge in the SDNY has determined that an ICO involving the “Simple Agreement for Future Tokens” (“SAFT”) framework constituted an unlawful unregistered securities offering, establishing a daunting precedent for both potential and past SAFT issuers.
Yesterday, Kik officially threw in the towel and settled with the SEC. One of the interesting things about this case is that the defendant was positively itching to fight the SEC. In fact, as I blogged last year, Kik even went out and raised a war chest from the crypto crowd to fund the litigation. I was skeptical that courting an enforcement proceeding was a particularly good strategy, and now that Kik has gotten its clock cleaned, perhaps the folks behind it don’t think so either.
Although the SAFT was a popular structure, people raised concerns about it from the start. Now that it’s been swatted down twice in the space of a few months, it’s probably time to concede that the SAFT structure doesn’t cut the mustard.
-John Jenkins, TheCorporateCounsel.net October 22, 2020