The Blockchain Association has filed a “friend-of-the-court” transient inside the current authorized case between the U.S. Securities and Exchange Commission (SEC) and electronic messaging inauguration Kik, controversy the agency’s kin token is just not a safety.

The advocacy group argues that the SEC is wrongfully conflating Kik’s 2019 exempt providing of securities to accredited traders with the issuance of blockchain tokens in its transient, filed Friday.

Rather, Kik organized its token sale in two elements: a non-public SAFT (Simple Agreement for Future Tokens) and a public token sale, the tie wrote inside the weblog publish locution the transfer. For the SAFT, Kik filed for a Reg D exemption. BITTREX BTC

The transient cites SEC Commissioner Hester Pierce, who wrote in her “protected haven” proposal that “conflating the two concepts [of the investment contract and the underlying asset] has limited secondary trading and has had black consequences for the power of token networks to become functional.”

“The Blockchain Association is troubled that the SEC’s recent arguments have conflated entering into a contract with accredited investors under a well-established exemption with other events involving the sale or distribution of tokens to the public,” the tie’s government director, Kristin Smith, instructed CoinDesk.

“In consistent statements, the SEC’s leadership, including Bill Hinman and Jay Clayton, had antecedently made clear that something that is a security at one point can later become a non-security – for example, when a network is sufficiently decentralised or fully functional,” she mentioned.

SAFTs attend court

The argument comes contemporary on the heels of a ruling on the case between the SEC and electronic messaging platform Telegram, and the gram tokens it had deliberate to difficulty for its Telegram Open Network (TON) blockchain.

In late February, a New York court dominated in favor of of the SEC, agreeing that the sale of the longer term tokens to accredited traders by Telegram and the inevitable re-sale of these tokens to the broad public had been two elements of the identical distribution scheme and was later on a securities transaction.

However, the decide didn’t say that gram tokens had been themselves securities (a footnote clarifies the decide didn’t make a ruling a proficiency or one other on it entrance).

“The rich purchasers who obtained large quantities of Kin at a significant discount were but a first step to a broader distribution to the public – in which purchasers planned to and did participate,” the SEC mentioned when it filed movement for abstract judgement on March 20.

The Blockchain Association believes the governor bought it fallacious for the second time: “The Court should not adopt the novel possibility advanced in the recent Telegram decision: that complying with existing securities exemptions by catching with sophisticated accredited investors amounts to a ‘scheme’ to distribute unregistered securities to the public at some point in the future.”

However, Smith believes that regardless of the court decides about Kik, this may not basically have an effect tout ensemble token business ultimately: “As with the Telegram lawsuit, even if the court finds in favor of of the SEC in that case, that does not necessarily have implications for the SAFT model in general.”

The Blockchain Association has already filed two amicus Jockey shorts in help of Telegram, controversy that the SEC shouldn’t imperil the innovation laborious the corporate for making an attempt to adjust to the regulation, i.e., promoting tokens to accredited traders only and submitting for an exemption.

The SEC’s case towards Kik started final June. In the next months, Kik close up its electronic messaging app, during which the kin token had been deliberate to be built-in, and offered it to an organization referred to as MediaLab. With the court ruling still pending, each the SEC and Kik filed motions for abstract judgement on the finish of March, asking for a ruling with out full trial.