Key Highlights

The Kik case is the first case that the SEC has brought in litigation that has been contested by the company where there are no allegations of fraud

“The SEC has made clear that virtually all ICOs are going to be treated as offerings of securities.”

Even if a company is offering ICOs outside of the United States, the SEC can still sue if the organization is conducting business with American citizens or residents

Legal conservatism is stifling innovation. Many people in the ICO space are leaving the US or “playing it safe” to avoid risks

The SEC has accused Kik of issuing its Kin cryptocurrency as a security without registering it as required under US law. It’s a legal showdown that could shape future securities law for cryptocurrencies.



In this episode of Word on the Block, Angie Lau speaks with Jason Gottlieb, attorney and partner at Morrison Cohen, on why the U.S. Securities and Exchange Commission is suing messaging app service Kik for its initial coin offering of Kin Token.

According to Gottlieb, the SEC divides the ICO world into three different tranches:

Companies that operate as outright frauds, Companies that actually have coins to offer but are done so on fraudulent rhetoric, Companies, like Kik, that are legitimate businesses that simply weren’t registered as if they are a security.

Kik, however, disagrees with the SEC’s assessment. Its lawyers argue that Kin cryptocurrency is not a security, but rather a token, and was designed only to be used within their system to purchase goods and services.

The SEC V. KIK INTERACTIVE INC. case is emblematic of the confusion many organizations face when working in and with the United States.

While Kik is a Canadian-based entity, the rules are clear for foreign entities that aren’t based in the United States. Under SEC regulation, if a company offers securities to American consumers, even from outside of the United States, it still falls under the jurisdiction of the SEC. As Gottlieb shared, the way companies have started to avoid falling within SEC regulatory purview, is to ensure it does not sell to buyers in American.

Gottlieb is also concerned that the regulatory environment in the U.S. is stifling innovation. At the present moment, no one really knows what the courts will ultimately decide, so if companies plan to remain involved in the U.S. market, they may simply play it safe in order to appease regulators. Safe also means expensive, which includes conducting KYC (Know Your Client).

Gottlieb argues that the legal system needs to clarify how cryptocurrencies are regarded. He says the SEC is pursuing cryptocurrencies because they think they’re securities; the CFTC is pursuing crypto because they interpret them as commodities. Both contradict each other. Both are U.S. government agencies. He tells Forkast.News that the courts or legislative bodies need to be able to distinguish these differences in relation to crypto-currencies.

The Kik case, once a decision is made in court, could finally put to rest how the law regards crypto today and in the future.

Full Transcript

Welcome to Word on the Block, the podcast from the editorial team at Forkast.News where we bring on the experts to help us deep dive into issues shaping the blockchain industry. I’m editor-in-chief Angie Lau. In this episode, we look into the show down between Kik, which led an ICO in 2017 that raised 100 million dollars, and the powerful US Securities and Exchange Commission now suing Kik for its initial coin offering of Kin Token.

So why does this matter?

Well, it could set legal precedents that could have repercussions that reverberate throughout the entire blockchain and crypto community. If Kik loses this fight, it may be forced to offer investors all their money back. Joining me right now is Jason Gottlieb, attorney and partner at Morrison Cohen. He focuses on regulatory enforcement related to among other things, cryptocurrency.

Thanks, Jason, for joining us. So, help us understand why everyone is watching this SEC lawsuit against Kik so closely. What’s the legal sin here? 0:07

Thanks, Angie, for having me on. the legal sin here, in brief, is that the Securities Exchange Commission is accusing Kik of issuing securities without registering them as required under the US security’s laws. Effectively, a lot of US and foreign cryptocurrency companies went through their initial coin offerings largely in 2017, in 2018, before the SEC clamped down on them. Companies were looking for a quick and easy way to raise funds and they figured they would sell their tokens into the market.

The SEC took the position that those tokens were by and large, securities and needed to be registered. If they were not registered, the companies were violating a US federal regulatory law in the 1933 and 1934 acts.

But if that was the case, why didn’t they shut it down right at the inception of the 2017 mark, why did they wait so long? 2:05

The SEC has largely divided the ICO world into three different tranches, we can say. The first, is the outright frauds. People like me say “Hey, I’m gonna sell you some Jason coin, you give me 20 bucks, I’ll give you a Jason coin and you give me 20 bucks and I say ‘haha sucker, see ya!” Those are the outright frauds. And the SEC shot those down quickly and the Department of Justice got involved and the people involved in those are by and large going to go to prison, as the case should be.

The second level down is the ones where there were actually securities or coins being offered but they were being offered fraudulently. Coin offerors would say “you’re guaranteed to make 2000% in the first month and our business model is the greatest thing ever because we have a brand new way of doing X, Y, Z,” when in truth, there was really no business model, and you can’t guarantee profits. People were selling real coins, but they were selling them on lies, and the SEC thought, “Well that security is fraud, and we’re going to shut those down as well. Some of those projects got shut down as they were coming out or before they were coming out.

Most notably in 2007, the SEC halted one called The DAO and issued a whole report about why it shut it down, and that report served as a warning to the market, so those cases were shot down. The third level down, however, are the cases where there was a coin being issued, it wasn’t being issued fraudulently, it was real business project people were honestly selling it, and the only problem is that it should have been registered as if it were a security, and that’s not as bad of a problem. And the SEC was taking a wait-and-see attitude on some of those. The importance of the Kik case is it’s the first case that the SEC has brought in litigation that has been contested by the company where there are no allegations of fraud. The only allegation is a failure to register the coin as a security.

Yeah, yeah, so should exchanges then who are conducting IEOs be concerned with regulatory backlash from the SEC and other regulators? 4:19

It’s a great question. The Howey Test refers to a case from the Supreme Court in 1946 involving a citrus farm in southern Florida that decided to lease out part of its property to finance and additional development and the question in the early days of America’s new securities laws in 1933 and 34, was whether that was a security. The Supreme Court came up with this test where it said that a transaction is an investment contract or a security if a person invests his money in a common enterprise, such as a company, and has led to expect profits solely from the efforts of the promoter or a third party such as that company, and this is a very broad test. This test has been used, as you said, for nearly the last 100 years. For the SEC to look at companies and say, if you are selling some portion of yourself, some kind of equity portion of yourself and people are buying that, because they expect that they’re going to make profits from your efforts, then that’s going to be a security.

Now, obviously, nobody was thinking about cryptocurrency in 1933, 34, 46. 1946 was a year before the ENIAC computer, that big room-sized computer was invented, so nobody was thinking about a cryptocurrency or digital currencies then.

But courts have used the Howey Test for that entire period of time and determined what is a security, and in a lot of ways, most of the coins that were issued fit very neatly into that test. If you bought a coin expecting that the people from whom you bought it were running a company, we’re going to make that company profitable. And you could expect profits from that in some way. It looks an awful lot like a security.

The question is, is the Kin Token that Kik was selling a security or is it something else?

So, what’s the legal response by Kik? I mean, they’re saying this is a flawed legal theory, how strong is their case? 6:36

I think that they’re going to have a lot of trouble under the current law, the way the Howey Test is written and the way the courts have interpreted it.

Let’s start with a little bit of the process here. The SEC was investigating Kik Interactive and the Kin Foundation, and in the early days of the process they did what they call a Wells Process where they tell the company “We’ve read your documents we interviewed your people, we think that you were issuing and unregistered security, we’re going to recommend to our bosses, the five SEC commissioners, that they start an action in federal court against you.

Do you have anything to say? This is your opportunity to convince us. And in that case, companies typically write what they call a Wells Memo where they try to convince the five commissioners of the SEC that really, there’s no case here, they should not go to bring this case. And in a very unusual move, Kik made its Wells submission public. Usually these are non-public submissions that just go to the SEC commissioners. Kik made its submission public and let the whole world read it.

And quite frankly, it’s a very good submission. The lawyers who wrote that did an excellent job in trying to show all the ways that the Kin cryptocurrency was not a security, was more like a so-called utility token, it wasn’t designed to be bought and sold in the market, they said it was designed only to have use in their system.

So in that way, it was less like a security and more like some sort of token that you might buy in an online game, where you’re not buying… if you’re playing a little bike race game on your phone, you buy a new bike, it’s not like you’re expecting to sell the bike, it’s just a cool little thing, and you want to play it in the game.

And they said, “really it’s more like that. And we think that because it can act as a currency, it’s less like a security and more like a medium of exchange, it’s more like money.” That is what their Wells memo contended, and it was again a very well-written Wells memo. That Wells memo went to the five commissioners, but what we didn’t see at the time was the SEC staffers’ memo that also went to the commissioners and that memo laid out what they would write in a complaint and the complaint which came out very recently on June 4th that is, laid out what the staffers thought of this argument. In short, they didn’t think the argument was very good because when Kik was first trying to sell the Kin Token, they explicitly and repeatedly referred to it as a way for people to buy into the company, to make money, it could be traded on secondary markets and in that way it looked much more like a security and when the five commissioners, got these competing Wells memos, only one of which was available to the public, the commissioners voted to authorize this action.

So, on June 4th, the SEC sued Kik in federal district court.

And just to give our audience a little bit of a context and to understand why Kik went to the ICO market in the first place, I mean, it was faced with what many saw as a shrinking financial runway, they even tried to sell itself, hiring a investment bank, trying to sell itself to a larger technology company in early 2017, it seemed to only look at the IC market as way to raise funds for what, at the time, is a troubled company, and it successfully did that, to the tune of 100 million dollars. So, do you think that in the context of why they decided to go for an ICO? Would that be held against them? 9:59

I think it absolutely is going to be held against them. And the SEC has alleged exactly that in the complaint saying that Kik’s first business line, The Kik Messenger was doing okay for a while, but then faltered in 2016. They had difficulty monetizing it, and they were really running out of money as you said, they tried various other business strategies, but they weren’t working. And then, the SEC alleges having no other options. Kik pivoted to digital tokens, calling it a “Hail Mary pass,” and thinking that this was a new way for them to capitalize the company, and make some money and it is exactly that backdrop that makes this more like a security, a way raising equity in a company, and it fits squarely into the Howey Test, that people would invest their money in this common enterprise with an expectation of profits.

There’s a separate question, whether that Howey Test is a good test for cryptocurrencies today, but that’s a question that really can only be addressed by Congress and a law or by the Supreme Court if it chooses to revisit Howey. Before we get to that point. All of the lower courts, the district courts, such as the court were the SEC sued and the intermediate appellate courts, the various courts of appeal have to apply the Howey Test, that is the law, they have to apply it and on that law, to answer your question, I think Kik has a difficult road ahead of it, particularly in the early phases of the case where a judge, at least at the initial steps accepts all the factual allegations that the SEC has made as true. Later, Kik can try to prove that they are not true, but that doesn’t come until a later phase of the case.

But Kik is already signaling to the market. I mean, it, as you said, this is not something that’s regular practice releasing its Wells submission to the SEC, to the public. It seems like they’re going after the court of public opinion. There’s a Defense Fund, I think they’ve raised 5 million dollars thus far, and they’re really kind of gearing up to be the poster child to really stand in, draw the line in the sand for the entire crypto community when it pertains to ICOS and the legalities with SEC regulation. Do you think when we take a look at the broader market, that this could potentially set legal precedence when it comes to the regulation of ICOS? 12:46

I think it may well set precedent, but it may not be in the way Kik wants it to.

Yes, Kik has, as you said, set itself up to be a champion of the crypto industry. They went public with the Wells, they indicated their intent to fight and given after the SEC sued, they came out with a press release calling the SEC’s complaint as being based on a flawed legal theory that stretches the how we test beyond its definition. The company did reportedly set aside 5 million dollars as a legal fund, they tried to raise money through a Kickstarter in an attempt to further bolster that fund. From what I understand, the Kickstarter was met with a little bit of skepticism and failed to raise very much money, and that’s understandable. They’ve got two excellent law firms working for them.

They say that they have spent 5 million dollars on legal fees, so far. And it’s frankly hard I think for the community to look at a company that raised 100 million dollars and spent 5 million dollars on two high-priced law firms to feel like they’re a good candidate for a crowd funding through a Kickstarter.

That being said, they are fully intending it as of now, to go forward, but they have a long road ahead of them.

Now, it’s a long road, but a lot of people are watching because it could potentially really turn black and white what has been great for a very long time. So if you were a project right now, taking a look at this, and wanting to do an ICO, should you go in now, what’s the current legal environment now? How do you advise companies as they look to fundraise? 15:04

The SEC has made clear that virtually all ICOS, are going to be treated as offerings of securities. So when I’m advising clients who want to issue tokens as a means of fundraising, I say, guys treat it like it’s a security, offer it like it’s a security, follow all of the securities regulations, and if you call it a token, if you call it a security token, that’s fine as long as you are following all of the SEC rules and regulations that would normally apply to securities offerings. If you’re staying within the rules, the SEC will be happy and they’ll leave you alone. If you are violating those rules, now after all of the warning shots, the SEC has fired over and over again. They’re going to come down on you hard and there’s really just no way around that, except if you don’t do it in the US at all.

And I think that is what has been happening to the US markets, a lot of companies are just leaving the US entirely and offering only abroad, but even there, there are some very onerous rules that the US applies. There have been several companies who offered from abroad into the United States, and we’re still subject to SEC’s jurisdiction, because if you’re offering securities to US residents and US residents are purchasing those securities here, the SEC can still call you into court here.

One of Kik’s defenses in this case, is we’re Canadians and we don’t have to play by your rules. There has been another case, very largely on point about a Canadian ICO in fall of 2017, that was hauled into court, here in New York federal court.

And the judge said “Yes, we have personal jurisdiction over you here because you are advertising to Americans, and you sold to Americans.” So the only way for foreign entities to be issuing tokens and not following US securities laws is literally to bubble off the entire United States and say, “We will not advertise to Americans on we will not sell to Americans, we’re going to use IP screening and blocking to make sure Americans can’t come in. We’re going to do a full know-your-customer analysis to understand what the nationality of purchasers are and if they’re Americans were not going to let them in. You have to take a lot of steps to wall off the United States and be totally abroad.

And of course, this is going to have an impact on fundraising since The United States is the deepest source of capital in the world, but it’s also going to have effects on the US markets who will not have access to these kinds of companies.

And it also presumes however, that this is always going to be the case, but we know that regulatory environment is changing, not only in the United States, but also internationally. I was just in Paris, where I led a panel of OECD, IOSCO, CFTC was there. Banking officials from Central Bank in Lithuania was there. Really talking about this international collaboration, cooperation when it comes to the regulatory space. So, you could say that right now, these are the rules in the US and just avoid it all together. But potentially these could be rules that are international. So, at that point, KYC, AML, all of that stuff is really, really important. So how would you advise projects in this murky landscape? 18:29

I think if you’re advising a project, in particular an international project, that’s looking to raise money from a wide variety of folks around the world, you want to pay attention to all of the jurisdictions in which you may be offering. Some jurisdictions are very restrictive on cryptocurrency offerings, some restrictions are a lot easier, but you do have to be aware of what’s going on in the world.

Now, as you said, there are talks amongst international regulators about perhaps moving towards some kind of standardization.

These are in the early stages, most countries haven’t figured out what they want to do with crypto yet, the SEC is still discussing it. We know then in other countries around the world, they’re still discussing it even internally, so getting all the regulators on the same page, maybe tough and maybe years off.

That being said, I can’t think of a better case for a unified set of international regulations than cryptocurrency or blockchain-based digital currencies.

I mean, think about the very nature of a blockchain-based currency, the genius of a blockchain transaction is If I transact with you, it’s a blind transaction, it’s a trusted transaction and it’s recorded on every node around the network, whoever has access to that network. The Bitcoin blockchain is accessible around the world. Anyone can access it, so if you have something that is a transaction that takes place, literally everywhere around the world, it seems rather provincial to apply one set of securities regulations or commodities regulations or currency movement regulations instead of having some sort of International Standard. This really cries out for international standard, but I think we’re many, many years away from getting there.

What’s wrong with KYC, AML? Is it the fact that it’s expensive, it’s prohibitive, why not just do it? 21:16

Well, I think you should. There are many reasons to do it, not least of which to know who you’re dealing with, to make sure that the source of funds that you’re getting is clean and trouble-free. I think companies should do it. Honestly, a lot of companies aren’t doing it, because they view it as too expensive, too burdensome. They actually worry that they might flag people whose money they want, and they would rather get the money then look at those people carefully. That of course is a big mistake, at least here at the United States. We’ve seen projects get shut down over a faulty KYC and AML rules and in extreme cases, people get prosecuted for violating money transfer laws.

And that is also the counterpoint. So, you have regulatory environment that makes it safe for at least protect the average citizen and… And that’s a great thing. The counter point to that is that it’s stifling innovation, it’s driving innovators to move off shore. Is that what’s happening in the US right now? 22:14

I think it is. All regulation is, is a balance between protecting the markets protecting individual investors, even protecting them from themselves sometimes and encouraging innovation in the markets and, kind of a new experimentation, not just experimentation in how securities might be issued, but what the companies are doing substantively.

It’s a very important, it’s a very important thing for governments to be able to say “We want you to take risks, we want you to start a company in your garage and we want to make sure that you have the resources you need to do that.” But of course you have to balance that because people, they are salesmen, and some salesmen are honest and many salesmen are not, and they will just sell and if they’re selling based on lies that people are going to get in trouble and get hurt, and we need to make sure that those people are protected. It’s a very tricky balance.

So look, ICOs have certainly, many would argue, was rife with a lot of this bad acting this bad actor scenario where people really got hurt. And it seems to have evolved now to the STO and IEOs, which is initial exchange offerings. How are these products, how are these vehicles for fundraising, more or less compliant, than ICOs, what are the differences here? 23:43

Well, let’s start with the STOs, the security token offerings. I think that STO is usually used as people as a shorthand for compliant ICO. They’re saying “We’re issuing securities, we’re going to follow all the rules, and we’re going to issue them not just as regular securities, because we really do want to use them as tokens,” they will have some sort of utility in our system, there’s some business purpose to them, other than just capital raising. But, they’re signaling we’re treating it as if it is a security because we don’t want to get in trouble with the SEC. That market has been struggling a little bit, I think, in part, investors were burned by the ICO run up and sell off in 2017 and 2018. But also, it adds a layer of complexity to fundraising. I’ve talked to many clients who come in and they want to offer an STO because they’ve got a very complex idea in their heads, and I tell them “Guys, why don’t you just do a plain vanilla securities offering, to raise equity and then on the other side, make your product, have your product have your technology, develop that.” There’s no necessary need to blend these quite yet. There are a few use cases where it makes a lot of sense, but often you have to think to yourself. Does this make sense, or are we just trying to be a little fancy here?

So, I think because of that uncertainty in the STO market has been stalled out a little bit, I don’t think it’s taken off quite the way people thought that it would. I’m still hopeful, I think the digitized and securities tokens are going to be a major force over the next decade, but it’s going to take some time to ramp up. On the initial… Forgive me, I’m a lawyer. I could talk forever, you know?

We’ve seen certain exchanges offering direct sales, direct access to these companies, so rather than issue broadly, privately. A company would just list on an exchange like a Binance and say, “Alright everyone if you want to buy our token, come to Binance, you can buy here, it’s available through this exchange,” and that model makes some sense. It’s kind of like the old IPO model where you go on to the NASDAQ and you say, “We’re offering it through the NASDAQ and we’ll come out here.

The problem is though, that is still going to be considered a sale of securities and if you are selling to US persons, you have to follow US law. What a lot of the entities, a lot of the exchanges are doing is walling off the United States, they’re not letting Americans purchase in those IEOs and if they’re walling off the United States ok, that’s fine. Of course, you still have the problem that say Canada has very similar rules. So, if you’re walling off the US, are you going to wall off Canada as well? Are you going to wall off other major European countries, because of the uncertainty about their securities laws? Sooner or later, if you start walling off all of the big deep pools of liquidity, you’re limiting what you can take.

We haven’t seen an action against an IEO yet, but we have seen the SEC take action against exchanges, crypto exchanges that were unlicensed and unregistered. And I think that if IEOs are offering in America or to Americans, it is a matter of time before they are going to be hit by the SEC.

At the end of the day, it’s the SEC versus Kik right now, whether or not Kik is going to win. They’re also pleading their case in the court of public opinion, but is this something that potentially could go all the way to the Supreme Court? 28:13

I think that it could, if Kik has deep enough pockets to take the fight that far.

This has been one of the problems we’ve seen early on, many of the earlier ICOs that were hit by the SEC either had their funds frozen so they couldn’t pay for a defense or they just didn’t have enough money to continue the fight, so they’ve either had to settle or in some cases, just default and give up.

What we haven’t seen is a fight going to the next step, someone going all the way through a district court process and then appealing that either the SEC or the ICO issuer to the Court of Appeals. That would be the first necessary step. And then whatever happens at the Court of Appeals, the loser can then petition to appeal to the Supreme Court.

Now, the Supreme Court wouldn’t have to take that case. The Supreme Court might choose to wait and see how it develops in the lower courts.

If every single court that hears it says this cryptocurrency is a security based on the Howey Test and none of the other courts disagree with that, the Supreme Court is less likely to take a case. The Supreme Court is more likely to take a case if there are disagreements between courts of appeals in various parts of the country and the Supreme Court feels that it’s necessary to step in to resolve this conflict of laws among the Courts of Appeals. Right now, we don’t even have a conflict of law amongst the district courts. Every district court that has looked at a potential security under the Howey Test in the cryptocurrency context has determined that either is a security or at the early stage of the litigation, they can’t say that it isn’t a security. So, we’re going to have to wait to see how these cases play out and it could take quite some time to get there.

Remember Howey Test was a 1946 decision by the Supreme Court, that was really the first test of the Securities Act of 1933 on this point. So it took 13 years for that test to percolate up to the Supreme Court. I’m not sure if the Supreme Court is actually in the master today. In fact, they may take fewer cases today than they did back then.

And at the end of the day, some would argue that as the regulatory bodies and the projects, like Kik split hairs, innovation itself is under trial and potentially this could affect the outcome of innovation in the United States. 30:54

It absolutely could. And there’s two reasons, one is that the legal uncertainty forces a certain conservatism. That is, you don’t know where the Supreme Court is going to come out on this test, and if they’re going to and if they’re going to… Is it going to be any time within the next decade. Because of that, people want to avoid those risks and just go on a nice safe path, and that is certainly where the SEC has been steering people. Stick to the regulations and you’ll be safe and that does tend to stifle innovation, it forces people to stick to the past that they’ve gone through before.

The other side of that is looking at innovation from a legislative point of view. If the courts aren’t going to decide these issues quickly, and the SEC is pushing people to conservatism, then the next best hope is a legislative enactment and we’ve seen some efforts at the federal level with a proposed token taxonomy act, that hasn’t gone anywhere in Congress, it’s being discussed. We’ve seen certain experiments at a state level, at New York with its virtual currency law takes a stricter view towards trade in virtual currencies and Wyoming has taken a much laxer view towards the Bitcoin and virtual currency markets, but until there’s some federal regulation on this point, then the entire game is regulation by court decision, which is incredibly slow, and forces that conservatism.

In the meantime, right! Folks are going off-shore, and a lot of the capital in this area is leaving America. The regulatory dampening has led folks to move abroad, to go to Singapore, to go to Switzerland, or to incorporate offshore in island jurisdictions where they think they’ll be beyond the reach of the regulators, and its sort of a crypto-brain drain from the United States.

Now, I don’t want to overstate that. Silicon Valley is Silicon Valley, New York, has a thriving ecosystem in this market. And if you wanted to live in Silicon Valley, New York, you’re probably here for other reasons as well, we’re a great place to live here in New York. We’ve got Broadway we’ve got Fifth Avenue, everyone should come here.

So, it’s not like everyone is leaving, but if the margins, I think you are seeing capital and talent leaving the United States and going elsewhere.

Well, from our headquarters here in Hong Kong at Forkast.News, we’re certainly getting eyes and ears on that story that’s thriving here in Asia as a result. There is absolutely no doubt about that. But Jason, my last question to you is, I know you’re an attorney, a lawyer, but sometimes lawyers end up judges. And so, if I were to ask you to be a judge in this case where would you fall what would your judgment be? 33:55

In the Kik case, I got to say, it depends on what level of judge I was, because if I was a judge, on the district court hearing, this case now or the Second Circuit Court of Appeals, I’d be obliged to follow the Supreme Court’s teachings in Howey and applying the Howey Test to the Kin cryptocurrency. And again, just on the allegations in the complaint, which is all we have… We have the Wells memo, we have the complaint, we don’t have the full facts, it’s still early.

But on the allegations of the complaint, it looks pretty plainly, that, as a federal district court judge, I would find that the Kin cryptocurrency is a security under the Howey Test I think that that would be the same results on the Second Circuit Court of Appeals.

If I were a Supreme Court judge and if any presidents or future presidents are listening and taking requests for nominations, sure I’ll throw my hat in the ring. If I were a Supreme Court judge, I think I would want to change things up a little because I think that the Howey Test is outdated when it comes to virtual currencies, it doesn’t quite fit the model of these hybridized things that are not quite securities and not quite commodities and not quite currencies and not quite objects. I think that something new is required, some new rules some new law, either rule or law from the Supreme Court, or legislation. So if were a Supreme Court Justice, I still might not rule in Kik’s favor, but I think that I would struggle to try to come up with a better test and say that there may be a test for traditional securities before cryptocurrencies, we’re going to treat it differently, we’re going to categorize them in this one bucket and say, that this one bucket should be overseen by certain regulators. What are the problems right now is the SEC is pursuing cases against cryptocurrencies because they think they’re securities. So, the CFTC is pursuing cases against cryptocurrencies, because the CFTC things that they are commodities. FinCEN is going after cryptocurrencies because they think that cryptocurrencies are currencies so all the regulators are piling on saying we think that that thing is what we do and we’re coming after you and that layer of regulatory complexity, which doesn’t exist for securities or commodities or currencies, is a huge problem for the industry. So if you put me on the Supreme Court, and again I’d be welcome, I’m open to it, I’m onto discussions. I would want to rule in a way that makes clear what these things ought to be, and how you can fit in tests for each category such that you don’t have that kind of regulatory complexity. I think you need the regulation, you need to protect investors, but you don’t need every single federal agency that can possibly put their nose in here to jump in and say “We’re going to also protect investors against this thing that we think is what we regulate.”

Well, whatever happens Jason, this is an entire industry waiting for rules of legal engagement and Jason Gottlieb of Morrison Cohen. We really thank you for your expertise, truly appreciate it and no doubt more will be seeking you out for it.

You can find more of Jason’s work on www.forkast.news. Until next time, thank you, Jason, for joining us and thank you everyone for joining us. I’m Angie Lau, signing off for now from Word on the Block. 37:39



