Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 1 of 143 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK U.S. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, Case No. 19-cv-5244 (AKH) vs. KIK INTERACTIVE INC. Defendant. DEFENDANT’S RESPONSE TO PLAINTIFF U.S. SECURITIES AND EXCHANGE COMMISSION’S LOCAL RULE 56.1 STATEMENT OF UNDISPUTED MATERIAL FACTS IN SUPPORT OF SUMMARY JUDGMENT Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 2 of 143 Pursuant to Fed. R. Civ. P. 56 and Local Civil Rule 56.1, Defendant Kik Interactive, Inc. (“Kik” or “the Company”) respectfully submits the following responses to the Securities and Exchange Commission’s (“Plaintiff” or “SEC”) Statement of Undisputed Material Facts In Support of Summary Judgment (“Statement”). Kik notes at the outset that the SEC’s Statement is far from the “short and concise statement” of material facts that this Court’s rules require. See Civ. L.R. 56.1(a). Many of the SEC’s purported facts contain multiple, compound statements. And many of them are wholly immaterial to the discrete issues in the Plaintiff’s Motion for Summary Judgment: whether Kik’s sales of the token Kin in 2017 constituted an “investment contract.” For example, the SEC references statements of a handful of Kin purchasers about what they planned to do with their Kin. Yet when assessing whether Kik led purchasers to expect profits from the efforts of others, as Howey requires, the focus is “on what the purchasers were offered or promised,” as opposed to subjective expectations or external forces in the market. Warfield v. Alaniz, 569 F.3d 1015, 1021 (9th Cir. 2009). Indeed, many courts have found no investment contracts despite evidence that a number of purchasers participated solely for profit or investment purposes. See, e.g., Woodward v. Terracor, 574 F.2d 1023, 1024-25 (10th Cir. 1978) (finding no investment contract despite several purchasers indicating they “did not intend to actually build on the land, and they bought the land as an ‘investment.’”). The SEC also repeatedly references documents and statements that were wholly internal to Kik and were indisputably not heard by any potential purchaser. These statements cannot form the basis for what Kik led purchasers to expect. See Salameh v. Tarsadia Hotel, 726 F.3d 1124, 1131-32 (9th Cir. 2013); SEC v. Blockvest, LLC, 2018 WL 6181408 (S.D. Cal. Nov. 27, 2018). Thus, they are immaterial to whether the Kin that Kik sold constituted the sale of an “investment contract.” Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 3 of 143 The glaring omission from the SEC’s 308 purportedly undisputed material facts is any reference to the single contract governing the relationship between Kik and TDE purchasers. See Kik Opp. at 1-2. The Terms of Use expressly limited purchasers’ rights and set their expectations. The SEC seeks to ignore this critical agreement by citing irrelevant and immaterial facts that appear only to mischaracterize the record or distract from the single question in this case. See Kik Opp. at 20. Finally, many of the SEC’s statements throughout cite to third-party statements or other evidence that is inadmissible. Many other paragraphs fail to cite to the record at all. Both of these shortcomings are improper at summary judgment, and those statements should be ignored. See Fed. R. Civ. P. 56(c)(2); Civ. L.R. 56.1(d). PLAINTIFF’S STATEMENT OF ALLEGEDLY UNDISPUTED MATERIAL FACTS AND DEFENDANT’S RESPONSES 1. Defendant Kik Interactive Inc. (“Kik”) is a privately-held Canadian corporation founded in 2009. (Kik’s Answer to Complaint (“Answer”) ¶ 5; SEC1, Kik’s September 17, 2018 Response No. the SEC’s Investigative Requests for Admission (“Inv. RFA”) No. 36; SEC2, Kik’s October 7, 2019 Response No. the SEC’s Rule 36 Requests for Admission (“Lit. RFA”) No. 1). In Response to No. 1: Undisputed. 2. Between February 22, 2017 and September 17, 2018, Kik had its headquarters in Waterloo, Ontario, and offices in New York City and Tel Aviv. (Answer ¶ 28; SEC1, Inv. RFA, at No. 1; SEC2, Lit. RFA, at No. 36). In Response to No. 2: Undisputed. 3. Kik’s New York City office was located in Manhattan, on the Lower East Side, and employed ten people, including its chief marketing officer. (SEC3, Investigative Testimony of Erin 2. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 4 of 143 Clift (“Clift Inv. Tr.”), at 11:19-21, 26:24-27:12; SEC4, Deposition of Peter Heinke (“Heinke Dep. Tr.”), at 41:6-25). In Response to No. 3: Undisputed. 4. From mid-2017 through the date of this filing, Kik’s general counsel lived and worked in California. (SEC5, Investigative Testimony of Eileen Lyon (“Lyon Inv. Tr.”), at 14:16- 22, 30:17-22; SEC6, Rule 30(b)(6) Deposition of Kik Interactive (“Kik 30(b)(6) Dep. Tr.”), at 13:5-14:22). In Response to No. 4: Undisputed that from mid-2017 through June 4, 2019, Kik’s general counsel lived and worked primarily in California. Kik objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 5. At present, Kik is headquartered in Kitchener, Ontario, and has several employees in the United States, including at least one in Manhattan. (Answer ¶ 28; SEC6, Kik 30(b)(6) Dep. Tr., at 13:5-14:20, 24:8-25:7). In Response to No. 5: Undisputed. 6. Before 2017, Kik received at least $120 million in financing from venture capital firms, including an investment in 2015 from technology conglomerate Tencent. (Answer ¶ 35). In Response to No. 6: Undisputed. Kik objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 7. Until September 2019, Kik operated a chat application called Kik Messenger, which was launched in 2010 and allowed users to communicate with each other using mobile devices. (Answer ¶ 36). Kik sold Kik Messenger in September 2019, and it has since then focused on developing a new product, a digital “wallet,” that will “send and receive and store Kin.” (SEC6, Kik 30(b)(6) Dep. Tr., at 28:10-31:24; SEC7, Deposition Exhibit (“Dep. Ex.”) 264). In Response to No. 7: Undisputed. Kik objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 3. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 5 of 143 8. Kik Messenger has had hundreds of millions of users (Answer ¶ 37), with a significant concentration among “teenagers and 20-somethings” in the United States (SEC8, Investigative Testimony of Edward Livingston (“Livingston Inv. Tr.”), at 38:12-20). In Response to No. 8: Undisputed. Kik objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 9. Kik has had challenges in making money from Kik Messenger. (SEC4, Heinke Dep. Tr., at 43:5-8). Historically, Kik has not been profitable, and its efforts to monetize its platform through other business lines have been largely insufficient to sustain its business. (Answer ¶ 38). In 2017, Kik was struggling to monetize its business without resorting to the sale of user data to advertisers. (Answer ¶¶ 5, 37). In Response to No. 9: Undisputed. Kik objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 10. Before fiscal year 2018, Kik’s costs exceeded its revenue (Answer ¶ 5), and Kik did not generate appreciable revenue. (SEC9, Investigative Testimony of Paul Holland (“Holland Inv. Tr.”) 30:14-33:7; SEC10, Investigative Testimony of Peter Heinke (“Heinke Inv. Tr.”), 43:24- 46:2; 48:16-50:2, 53:15-55:6). In Response to No. 10: Undisputed. Kik objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 11. From mid-2015 to mid-2016, the company recorded $2.2 million in revenue but had total expenses of $29.2 million, and the company experienced a comprehensive loss, before adjustments for income taxes, of $29 million. From mid-2016 to mid-2017, the company recorded $1.5 million in revenue but had $32.3 million in expenses, and the company experienced a comprehensive loss, before adjustments for income taxes, of $32.9 million. (Answer ¶ 38; SEC11, Dep. Ex. 26; SEC12, Dep. Ex. 27; see also SEC2, Lit. RFA, Nos. 48-49; SEC4, Heinke Dep. Tr., at 43:20-45:17; SEC10, Heinke Inv. Tr., 50:7-52:6). 4. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 6 of 143 In Response to No. 11: Undisputed. Kik objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 12. In late 2016, Kik hired an investment bank to evaluate a potential sale of the Company. (Answer ¶ 40). On or about February 1, 2017, Kik’s CEO sent an email to Kik’s Board of Directors attaching an update from the investment bank. The update stated that the investment bank had contacted 35 parties and signed confidentiality agreements with seven of them, and that all seven declined to buy or merge with Kik after attending presentations. (SEC13, KIK_FOUNDATION_CAP_001299). The investment bank did not find a buyer for Kik. (SEC4, Heinke Dep. Tr., at 46:22-47:10; SEC14, Investigative Testimony of Tanner Philp (“Philp Inv. Tr.”), at 36:14-40:11). In Response to No. 12: Undisputed that Kik hired an investment bank to evaluate a potential sale of the Company, and that Kik’s CEO sent the email cited. Disputed that the investment bank did not identify a buyer for Kik. See SEC10, Heinke Inv. Tr. 30:17-31:1 (explaining the bank “felt we had the opportunity to go back to a couple” of potential buyers). Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract” and because the statements of an investment bank contained in an email from Kik’s CEO contain inadmissible hearsay. 13. “With no bids coming out of the [investment bank’s] process, and a continued decline in [Kik Messenger’s] metrics, [Kik was] in a precarious position, to say the least.” (SEC15, Dep. Ex. 28). In Response to No. 13: Disputed. At that time, Kik had options available to extend its cash runway, including by reducing expenses or obtaining another round of investor financing. Philp Decl. ¶ 25. As a result, as Kik’s former CFO testified, the Company was not in a precarious position. SEC10, Heinke Inv. Tr. 79:21- 80:15. Tellingly, the SEC does not provide any cite or support for what metrics were supposedly in decline. Kik further objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 14. At the same time, “the answer of Kik will ‘figure out how to make money later’ was no longer an option with [Kik’s] investors.” (SEC8, Livingston Inv. Tr., 42:10-43:4) And, going into 2017, there was “a fear within Kik that Kik could die.” (Id. at 46:19-22). 5. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 7 of 143 In Response to No. 14: Disputed. As to the first sentence, the SEC has provided no evidence from any investor much less all of them regarding what options they would consider. As to the second sentence, it was not universally held fear within Kik that Kik could die given it had other options to extend its runway, including by reducing expenses or obtaining another round of investor financing. Philp Decl. ¶ 25. Also, as Kik’s former CFO testified, the Company was not in a precarious position. SEC10, Heinke Inv. Tr. 79:21-80:15. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” B. BY EARLY 2017, KIK WAS RUNNING OUT OF MONEY 15. By early 2017, Kik had had roughly $26 million in cash remaining and, at times, spent around $3 million per month. (Answer ¶ 41). In Response to No. 15: Undisputed. Kik objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 16. On January 27, 2017, Kik’s CEO sent an email to Kik’s Board that referenced an upcoming meeting and attached a slide deck. The slide deck showed that daily average users dropped from more than 10 million in January 2016 to about 6 million in January 2017, and that monthly average users dropped from more than 28 million in January 2016 to about 20 million in January 2017. (SEC15, Dep. Ex. 28, at KIK_FOUNDATION_CAP_005718-719; SEC4, Heinke Dep. Tr., at 50:16-52:5; see also Answer ¶ 37). In Response to No. 16: Undisputed. Kik objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 17. The January 27, 2017 slide deck also stated that the “Current Situation” was “$3.1M current burn” and “Runway to September 5, 2017.” (SEC15, Dep. Ex. 28, at KIK_FOUNDATION_CAP_005718-719, 740; SEC4, Heinke Dep. Tr., at 53:22-54:6). “Runway” meant the time by which Kik would run out of money to fund operations under then-current spending levels. (SEC4, Heinke Dep. Tr., at 52:6-20). “Current burn” meant the amount of money Kik spent every month to operate. (Id. at 55:3-6). 6. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 8 of 143 In Response to No. 17: Undisputed that that the cited slide deck contains the quoted language, and that as Mr. Heinke testified, “[r]unway is the length of time a company normally has cash flow to operate,” and that “current burn” refers to the “monthly operational expenses.” Disputed that the cited text reflects the only possible calculation of the cash burn rate and runway given that “Kik had. . . options available to extend its cash runway, including pursuing an acquisition, reducing expenses, or another round of investor financing.” Philp Dec. ¶ 25. Kik’s management decided to pursue a cryptocurrency-based business model instead, as Kik would be able to earn revenue on an ongoing basis.” Id. As Kik’s former CFO, Mr. Heinke, testified, Kik had numerous options to extend its runway, and that “it was not a serious concern to me at that time.” SEC10, Heinke Inv. Tr. at 179:21-180:15. Kik further objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” C. KIK PLANNED A SINGLE OFFERING OF ONE TRILLION DIGITAL TOKENS CALLED “KIN”1 18. The January 27, 2017 slide deck included slides stating that a sale of a “cryptocurrency” may be a way for Kik to “finance the business” and thereby “[e]xtend[] [r]unway.” (SEC15, Dep. Ex. 28, at KIK_FOUNDATION_CAP_005739, 005747, and 005752). The slides also stated that “launching a new cryptocurrency” was a “new way to raise funds that is in vogue,” and they noted that such a launch would be a “[l]arge pivot in business model.” (Id. at KIK_FOUNDATION_CAP_005752). In Response to No. 18: Undisputed that the cited slide deck contains the quoted language taken out of context. Disputed that these statements reflect all the reasons for considering a cryptocurrency or that it reflected a large pivot in the business model. As Mr. Heinke testified, generating revenue was only one aspect of the cryptocurrency model discussed by the Board and the cryptocurrency model reflected an evolution from Kik’s prior experience with Kik Points rather than a large pivot. SEC4, Heinke Dep. Tr. at 57:23-59:11; see also SEC10, Heinke Inv. Tr. at 75:23- 76:5. Kik further objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 1 Kik disputes and objects to all headings as unsupported by any citations to the record. 7. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 9 of 143 19. During its meeting on or about February 1, 2017, Kik’s Board discussed the slides circulated on January 27. (SEC4, Heinke Dep. Tr., at 57:11-59:1). In Response to No. 19: Undisputed that Kik’s Board discussed, among other things, the January 27 slides at its meeting on or around February 1, 2017. Kik objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 20. By early 2017, Kik’s senior management had concluded that sale of digital tokens was Kik’s “only option.” (SEC8, Livingston Inv. Tr., at 79:14-80:5, 158:12-161:10). In Response to No. 20: Disputed. “Kik had other options available to extend its cash runway, including pursuing an acquisition, reducing expenses, or another round of investor financing. However, Kik’s management decided to pursue a cryptocurrency-based business model instead, as Kik would be able to earn revenue on an ongoing basis.” Philp Decl. ¶ 25; see also SEC10, Heinke Inv. Tr. at 179:21- 180:15 (“Kik had numerous options to extend its runway”). Kik further objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 21. The new cryptocurrency considered by the Board would be issued on a blockchain. A blockchain is a type of distributed ledger or peer-to-peer database that is spread across a network and records all transactions in the network in theoretically unchangeable, digitally-recorded data packages called “blocks.” Each block contains a batch of records of transactions, including a timestamp and a reference to the previous block, so that the blocks together form a chain. The system relies on cryptographic techniques for securely recording transactions. A blockchain can be shared and accessed by anyone with appropriate permissions. Some blockchains can record what are called “smart contracts,” which are, essentially, computer programs designed to execute the terms of a contract when certain triggering conditions are met. (Answer ¶ 30). In Response to No. 21: Undisputed. Kik objects to each statement to the extent it does not contain a citation to admissible evidence as required by Fed. R. Civ. P. 56(c) and L.R. 56.1(d). 22. Kik’s Board members often referred to the potential issuance of a cryptocurrency as an “ICO,” which is shorthand for Initial Coin Offering. (See, e.g., SEC16, Investigative 8. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 10 of 143 Testimony Exhibit (“Inv. Ex.”) 150; SEC17, Investigative Testimony of Fred Wilson (“Wilson Inv. Tr.”), at 132:8-133:3; SEC9, Holland Inv. Tr., at 64:4-65:9). In Response to No. 22: Disputed. The cited evidence does not support the assertion that Kik’s Board members “often” used the term “ICO.” Mr. Wilson makes no reference to an “ICO.” See SEC17, Wilson Inv. Tr. 132:8- 133:3. Mr. Holland states only that, “at some point, Kik . . . an ICO was executed upon.” SEC9, Holland Inv. Tr. 64:4-65:9. Moreover, Kik executives testified that they did not use the term ICO. See SEC4, Heinke Dep. Tr. at 139:22-140:9; SEC14 Philp Inv. Tr. at 163:9-21. Kik further objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. 23. From February through May 2017, Kik’s executives continued to provide updates to the company’s directors about Kik’s financial “runway,” and Kik predicted it would run out of cash sometime during the late fall of that year. (See, e.g., SEC18, Dep. Ex. 4 at KIK_00026538; SEC19, Dep. Ex. 36 at KIK_00106791; SEC4, Heinke Dep. Tr., 86:7-18, 87:21-88:8; SEC3, Clift Inv. Tr., 52:16-54:6; SEC9, Holland Inv. Tr., 48:21-51:19; 106:2-107:21; SEC14, Philp Inv. Tr. at 32:16-33:14; SEC17, Wilson Inv. Tr. 37:4-39:4). In Response to No. 23: Disputed. “Kik had other options available to extend its cash runway, including pursuing an acquisition, reducing expenses, or another round of investor financing. Kik’s management decided to pursue a cryptocurrency-based business model instead, as Kik would be able to earn revenue on an ongoing basis.” Philp Dec. ¶ 25; see also SEC10, Heinke Inv. Tr. at 179:21- 180:15 (Kik had numerous options to extend its runway). As Kik’s former CFO testified, Kik had been “conservative” in projecting its runway, and Kik had in fact extended its runway previously, including from September to November 2017. SEC8, Heinke Dep. Tr. at 54:19-55:2, 87:3-19. Kik also objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 24. On February 16, 2017, Kik’s CEO emailed the board a PowerPoint slide deck that included “The Potential for an ICO” in the agenda and a section entitled “Kik & the Blockchain” (SEC18, Dep. Ex. 4 at KIK_00026455), which included, inter alia, the following statements 9. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 11 of 143 regarding the potential interest of “cryptoinvestors” and “crowdfunders” in purchasing a digital token issued by Kik: x “Cryptoinvestors” were “largely funding three areas” that included blockchain platforms, infrastructure projects, and decentralized applications; x “We believe that the scale of our network alone will drive strong interest from the cryptoinvestor community;” and x 68% of “Crowdfunders” “[w]ould invest in tradable digital tokens of a blockchain company if offered good risk-return potential.” (Id. at KIK_00026455, 57-58, 61, and 63; see also SEC3, Clift Inv. Tr. at 98:19-99:9, 99:13- 103:13). In Response to No. 24: Undisputed that the slide deck contained these statements, which came from third-party CoinFund. Disputed to the extent the SEC attributes these statements to Kik. The slide deck expressly states that the statements are from “Source: Coinfund Investor Survey.” See SEC18. As Kik’s former Chief Marketing Officer and the person who created the deck specifically explained she “was sharing the results of the CoinFund investor survey” on behalf of CoinFund, SEC3, Clift Inv. Tr. 100:7-13, the information was “taken from the survey,” id. 101:5, and she did not “even recall going through this in detail.” Id. 101:1-2. CoinFund’s statements are not attributable to Kik and are inadmissible hearsay. Additionally, disputed as to the term “cryptoinvestor” as it was a term CoinFund used; Kik did not understand “cryptoinvestor” to mean participants who were buying with a specific intent to profit or anyone who would buy tokens through a public sale. SEC4, Heinke Tr. 78:5-79:13; SEC14, Philp Inv. Tr. 124:1-15. 25. Kik’s “pivot” to cryptocurrency coincided with a dramatic increase in both the number of digital token offerings and the amounts raised therein – “a sort of market frenzy that typifies a bubble.” (SEC20, Dirk A. Zetzsche, Ross P. Buckley, Douglas W. Arner, & Linus Föhr, The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators, 60 Harv. Int’l L. J. 267, 288 (2019) (analyzing 1,000 ICO “whitepapers” issued between 2016 and 2019)). During a February 2017 conference, a market observer – whom Kik later hired as a consultant – 10. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 12 of 143 predicted “strong growth of ICO markets in 2017” with 34 ICOs in the first half of the first quarter and, by year end, “300 ICOs raising $600m.” (SEC21, Dep. Ex. 133 at MMLWM-00000151; SEC22, Deposition of William Mougayar (“Mougayar Dep. Tr.”), at 71:14-72:10). According to an article by CoinDesk, “43 ICOs in 2016 raising an aggregate $256 million; that number jumped to 343 ICOs in 2017.” (Answer ¶ 44). And, according to the founder of a hedge fund that would become the top Kin purchaser, “[t]he ICO market [was] white hot” in 2017. (Answer ¶ 72; SEC23, Investigative Testimony of Daniel Morehead (“Morehead Inv. Tr.”), at 57:17-25; SEC24, Inv. Ex. 180). In Response to No. 25: Disputed to the extent the SEC suggests by these statements that Kik intentionally timed its Token Distribution Event (“TDE”) at a time of a market “frenzy” or “bubble.” The timing “actually worried” Kik because “an overheated market” would be “a big problem” for a volatile cryptocurrency. SEC10, Heinke Tr. 343:15-344:10. Additionally, the timing of the TDE was in part determined based on pressure from Pre-sale purchasers. Id. 361:12-19. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract,” and to the extent the third-party statements are offered for their truth because such statements constitute inadmissible hearsay. Otherwise, undisputed that the cited documents contain the quotes referenced by the SEC 26. At the February 16, 2017 meeting, Kik’s Board instructed the executive team to assume that Kik would conduct a token sale, while the company was “finishing [its] evaluation of the viability’ of a cryptocurrency project.” (Answer ¶ 45). In Response to No. 26: Undisputed. Kik objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 27. In an email to Kik’s chief marketing officer and another marketing employee dated February 28, 2017, Kik’s CEO described Kik’s new “crypto story,” which would be “a new way” to raise capital. He wrote, inter alia, that Kik would “sell some [tokens] to crypto investors to raise money,” and that “[m]ore demand” for the token would mean “[v]alue goes up,” and, therefore: “Buy today, sell tomorrow, profit.” (SEC25, KIK_00026563; Answer ¶ 46). 11. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 13 of 143 In Response to No. 27: Undisputed that Mr. Livingston sent an email containing the quoted text taken out of context. Disputed that the select quotes accurately summarize the email cited. Mr. Livingston described several features of a “Kik coin crypto currency” beyond those cited by the SEC, including that it will “get developers a simply yet powerful monetization tool for their bots,” SEC25, KIK_00026563. The email continues to describe how Kik will give some Kin away to users (thus raising no money). Id. at KIK_0026564. Additionally, a sale of some tokens to a select group of purchasers to raise money to fund the development of the Kin token is entirely consistent with the Pre-sale Kik conducted pursuant to Regulation D, the purpose of which was disclosed in its Whitepaper and to all participants in the Presale. Kik Ex. E (SAFT), Ex. K (Whitepaper). Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 28. Similarly, in a March 24, 2017 email to Kik’s Leadership Team, Kik’s CEO described his “[v]ision” for an offering of tokens (then called “Kik Points”) and the “value proposition to investors.” He explained that, “because of all the things [Kik will] do to create demand for [the tokens],” people could buy now at a low price and sell later at a higher price to “creat[e] a return”: [I]f you buy some Kik Points today when the demand is low, then you will be able to sell them at a higher price tomorrow when the demand is higher, creating a return. This potential return encourages investors to “buy in” at an ICO. An ICO is where Kik takes a portion of its reserves from its Fort Knox (say 100 million of the 1 billion Kik Points that we initially created and put in our Fort Knox) and sells them in an auction. The value proposition to investors is that if they buy in today at the ICO, and then the demand for the currency goes up because of all the things we do to create demand for them, then they will be able to sell their points at a higher price in the future, and make a return. The money taken in from investors for the ICO is used by Kik to fund development to create more and more demand by both growing the community, and by growing the demand for the currency within the community. (Answer ¶ 47; SEC26, Inv. Ex. 107 at KIK_00026625; SEC8, Livingston Inv. Tr., at 208:19- 210:13). In Response to No. 28: Undisputed that Mr. Livingston sent the cited email containing the quoted language, but Kik notes it is taken out of context. Disputed that the selected quote accurately summarizes the cited email or Kik’s intentions as of the Pre-Sale or TDE. The email was sent internally by Mr. Livingston months before Kik even announced the Kin economy to the public. Disputed that Kik’s 12. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 14 of 143 efforts would cause the value of the token to increase. Mr. Livingston was explaining general crypto economics, and that the value of any cryptocurrency would go up “because of all the things everybody does.” SEC8, Livingston Inv. Tr. 218:21-220:15. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” 29. During this same time period, Kik began to work with a consulting firm located in New York City to research the market for tokens and other digital assets and to design Kik’s ICO. (SEC10, Heinke Inv. Tr., at 80:22-86:25; SEC9, Holland Inv. Tr. 98:4-9; SEC14, Philp Inv. Tr., at 56:13-19). In Response to No. 29: Disputed that Kik hired a consulting firm to design an “ICO” as Kik did not use the term “ICO,” but rather referred to a “token distribution event” because Kik’s TDE reflected “the importance of the distribution to participants of the network.” SEC14, Philp Inv. Tr. 162:23-163:21; SEC4, Heinke Tr. 139:22-140:8. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” Otherwise undisputed. 30. The consultant’s research confirmed for Kik that “serious cryptoinvestors globally as well as small VC funds and family offices that are pushing into the space” could, in fact, become interested in adding Kik’s tokens to their existing portfolios of digital assets. (Answer ¶ 49). The consultant again advised Kik that the “investment space” for digital tokens “[wa]s extremely hot” and reported for recent token sales that “[t]he average return multiple is 15x.” (SEC27, Dep. Ex. 6 at COINFUND007697 (emphasis in original); SEC10, Heinke Inv. Tr., at 127:20-128:10). In Response to No. 30: Undisputed that the consultant report contained the quoted statements taken out of context. Disputed that these statements reflect the conclusions of the consultant report or that Kik adopted those statements as its own conclusions. The consultant conducted a survey to gauge general interest in a generic cryptocurrency in February 2017, well before Kik announced Kin to the public. SEC8, Livingston Inv. Tr. 200:1-9. As Mr. Heinke testified, Kik knew that its ecosystem would not survive if the market for Kin was a volatile one and when Kik eventually sought purchasers, it sought to avoid speculative purchasers.” See SEC10, Heinke Inv. Tr. 128:6-129:3. 13. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 15 of 143 Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract,” and because statements of the third-party consultant constitute inadmissible hearsay. 31. On April 10, 2017, in advance of a meeting of Kik directors later that same week, Kik’s CEO sent to the directors his PowerPoint presentation for the meeting, entitled “Kik & Cryptocurrency,” together with a report prepared by Kik’s consultant. (Answer ¶ 50; SEC28, Dep. Ex. 35). The materials included results from the consultant’s “Cryptoinvestor Survey” and “Cryptoinvestor Expert Panel” and contained a “Funding perspectives” slide showing revenues from average historical token sales and predicted a capital raise of “$100 million easily” from the offering. (Answer ¶ 50). The materials set forth a “roadmap” for a token sale later that year and included steps for an “investor marketing plan” and an “exchange outreach.” (Id.). In Response to No. 31: Undisputed that Mr. Livingston sent the referenced email containing the referenced materials. Disputed that these statements accurately convey the contents of the overall Kik presentation or the findings of the CoinFund report or that they had any influence on the TDE or Pre-Sale. The results of the “Cryptoinvestor Survey” and “Cryptoinvestor Expert Panel” conducted by the third-party consultant, are referenced on a single slide in a 14-page presentation. SEC28 at KIK_00106722. The report itself listed five different “limitations” to “ interpreting survey results,” including that the survey had a small sample size and demographic biases. SEC28 at KIK_00106675, -677. Mr. Livingston did not even recall “personally reading through the report itself,” SEC8, Livingston Inv. Tr. 193:19-194:1, and others in Kik’s leadership specifically rejected the nomenclature used in the report, SEC10, Heinke Inv. Tr. 155:19-23. Kik further disputes that the “general roadmap” referenced by the SEC reflects the steps Kik actually took before and during its token sales, which occurred months after this presentation. SEC28 at KIK_00106727. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” The Howey analysis involves an “objective inquiry into the character of the instrument or transaction offered based on what the purchasers were ‘led to expect.’” Warfield v. Alaniz, 569 F.3d 1015, 1021 (9th Cir. 2009). Thus it is limited to documents or statements that form the “basis of the sale.” See Salameh v. Tarsadia Hotel, 726 F.3d 1124, 1131- 32 (9th Cir. 2013). In addition, documents and discussions that were wholly internal to Kik are not relevant and inadmissible. Id. Kik further objects to the statements from the third-party consultant as inadmissible hearsay. See Fed. R. Evid. 802. 14. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 16 of 143 32. Despite the consultant’s optimism, in a late April 2017 email, a Kik Board member described Kik’s plan to offer and sell a digital token as “a hail Mary pass that involves crypto.” (SEC29, USV0015937; Answer ¶ 7). In Response to No. 32: Undisputed that a Kik Board member sent the cited email stating that Kik is “attempting a hail Mary pass that involves crypto.” SEC29 at USV0015937. Disputed that Kik or Kik’s Board viewed Kik’s plan to be “a hail Mary pass” SEC8, Livingston Inv. Tr. 166:6-22. (“The more I think about it, I think this is a great idea. People call it a hail Mary but to me that is a longshot and I really do not think it is a long shot.”). Kik further objects to these wholly internal statements as irrelevant and immaterial to any of the issues in the SEC’s Motion. See, supra, Response No. 31. 33. In April 2017, Kik and its New York-based consultants started to draft a “white paper,” through which the company would announce the offering of the digital token – by this time called “Kin” – to the public. (Answer ¶ 52). In Response to No. 33: Disputed insofar as Kik announced the Kin offering not in its white paper but at a live event called Token Summit in New York City in May 2017. SEC8, Livingston Inv. Tr. 338:11-21. Otherwise undisputed. 34. On May 4, 2017, Kik’s CEO emailed Kik’s Board a PowerPoint slide deck stating that the end of the company’s cash runway was six months away – October 9, 2017, if the company made severance payments to fired employees, or November 1, 2017, if it did not. (SEC19, Dep. Ex. 36, at KIK_00106791; SEC4, Heinke Dep. Tr., at 85:22-86:18). In Response to No. 34: Disputed to the extent the SEC suggests that Kik in fact would run out of cash on October 9, 2017 or November 1, 2017 because those dates were projections only. SEC4, Heinke Tr. 86:4-87:23. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” Otherwise undisputed. 35. The PowerPoint Slides attached to Kik’s CEO’s May 4, 2017 email described Kik’s intended sale of one trillion tokens, which would be “sold on day 1” to “Investors.” (SEC19, Dep. Ex. 36, at KIK_00106802; see also id. at KIK_00106815). 15. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 17 of 143 In Response to No. 35: Disputed that Kik intended to sell one trillion tokens “on day 1.” Kik’s distribution of Kin involved two distinct transactions: a Simple Agreement for Future Tokens (“SAFT”) that took place from June through September 11, 2017, and a Token Distribution Event that took place from September 12 through September 26, 2017. Philp Decl. ¶¶ 33-34, 37, 66-77. Participants in the Presale entered the SAFT in which they received only the right to receive Kin if and when the Kin network launched. SEC14, Philp Inv. Tr. 248:3- 6. Kik further disputes the statement to the extent it suggests Kik sold Kin to “investors” whose intent only was to profit from a passive investment. As Kik’s then Manager of Special Initiatives explained, early on Kik used the term “investors” loosely to refer to participants token sales without regard for their intent. See SEC14 Philp Inv. Tr. 124:1-125:5. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. Otherwise undisputed. 36. On May 22, 2017, in advance of a telephonic Board meeting the next day, Kik’s CEO sent the directors a PowerPoint presentation with details about the company’s planned offering, which had been fleshed out during the drafting of the white paper. (Answer ¶ 54; SEC30, Dep. Ex. 7). In Response to No. 36: Undisputed. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response 31. 37. The presentation reiterated that Kik would create a total supply of 10 trillion Kin tokens and offer a “[f]loat” of 10 percent of that supply (i.e., one trillion tokens), with a “Total Raise Target” of $100 million. (Answer ¶ 55; SEC30, Dep. Ex. 7). The “Total Raise” would occur though a “Pre-Sale” phase and a “Token Distribution Event.” (SEC 30, Dep. Ex. 7, at KIK_00106892). In Response to No. 37: Disputed to the extent the SEC suggests that Kik was conducting a “single offering.” Kik conducted two distinct sets of sales: the Pre- sale, which involved “a private offering of futures contracts with 50 accredited investors from June through September of 2017,” and the TDE, which was intended to ensure a wide distribution of Kin to a large base of users, and took place from September 12 to September 26, 2017. Philp Decl. ¶ 32, 67-68, 77. Additionally, the document cited by the SEC confirms that Kik planned two distinct sets of 16. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 18 of 143 transactions: the Pre-Sale and the Token Distribution Event.” SEC30 at KIK_00106894. The fact that one page of the document references a 10% “float” and indicates how tokens will ultimately be allocated from a fixed supply does not suggest that Kik conducted a “single offering.” Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response 31. Otherwise undisputed. 38. The presentation also described the sale of the one trillion tokens in multiple “tranches,” with buyers in the earlier tranches – i.e., what Kik called a “Pre-Sale” – committing funds in advance of a sale of Kin to the general public in exchange for discounts from the final offering price. (Answer ¶ 55; SEC30, Dep. Ex. 7). In Response to No. 38: Disputed to the extent the SEC suggests that Kik was conducting a “single offering.” See Response No. 37. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. Otherwise undisputed. 39. Kik had also decided to sell Kin in one or more of the early tranches by entering into Simple Agreements for Future Tokens (“SAFTs”) with investment funds and other wealthy investors. As of May 22, 2017, Kik planned to raise up to $50 million through SAFTs, during the “Pre-Sale,” and between $50 million to $75 million more in what Kik called the “public tranche[s].” (Answer ¶ 56; SEC30, Dep. Ex. 7; SEC10, Heinke Inv. Tr., at 207:10-23). In Response to No. 39: Disputed to the extent the SEC suggests that Kik was conducting a “single offering.” See Response No. 37. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. Otherwise undisputed. 40. The May 22, 2017 presentation summarized a single sale of the one trillion Kin “float” as follows: 17. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 19 of 143 (Answer ¶ 57; SEC30, Dep. Ex. 7, at KIK_00106893). In Response to No. 40: Disputed to the extent the SEC suggests that Kik was conducting a “single offering.” See Response No. 37. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. Otherwise undisputed that this slide is one of several slides contained in the May 22, 2017 Board presentation. 41. The presentation also explained that 30 percent of the total number of tokens created (i.e., three trillion) would be allocated to Kik under a future vesting schedule, while 60 percent of the total supply (i.e., six trillion) would be allocated to a new “Kin Foundation” that Kik would establish. (Answer ¶ 58). In Response to No. 41: Disputed to the extent the SEC suggests that Kik was conducting a “single offering.” See Response No. 37. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. Otherwise undisputed. 18. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 20 of 143 42. By planning to keep three trillion Kin, Kik intended to compensate itself for “provid[ing] start up resources, technology, and a covenant to integrate with the Kin cryptocurrency and brand.” (SEC31, Dep. Ex. 12, at KIK000021).2 And, in so doing, Kik planned to profit from any future appreciation of Kin, so that the more success Kik had with respect to its “goal . . . to grow the value of Kin . . . the more the value of [Kik’s] 30 percent grows.” (Answer ¶ 115). In Response to No. 42: Undisputed that Mr. Livingston stated, as set forth in Kik’s Answer, that “the more we [grow the value of Kin], the more the value of our 30 percent grows.” ECF 22 at ¶ 115. Also undisputed that Kik’s Whitepaper states that Kik will “provide start up resources, technology, and a covenant to integrate with the Kin cryptocurrency and brand.” Disputed that Kik planned to “profit” or ever stated it would “profit” from the growth of the value of Kin, or that Kik intended to compensate itself. The SEC’s citations do not support these statements. Further, the footnote is disputed to the extent the SEC suggests that Kik was conducting a single “one trillion Kin” offering. See Response No. 37. 43. Before the May 2017 public announcement, Kik drafted a single “communications strategy” that would run from the announcement until the “token distribution event” and encompass both the “Pre-sale” and “Public sale” phases. (Answer ¶ 59; SEC32, Inv. Ex. 56) Kik also planned a single “Investor Roadshow” that included events in New York City, San Francisco, and abroad. The plan included the public announcement at which Kik would “[d]rive interest and awareness of Kik token sale,” meetings with venture capitalists, and the token sale itself (then scheduled for July 2017), at which Kik would “Drive participation in sale” by the “Crypto community.” (Answer ¶ 59; SEC32, Inv. Ex. 56). In Response to No. 43: Disputed to the extent the SEC suggests that Kik was conducting a “single offering.” See Response No. 37. Kik’s communications strategy focused on two distinct events: the token distribution event, and the Pre- sale. The marketing for these events was focused on different audiences. See SEC14, Philp Inv. Tr. 173:16-24; see also id. 173:16-25 (“All of the marketing communications for the public sale was very specifically about the business model 2 SEC31, Dep. Ex. 12, is the Kin white paper, which Kik published on May 25, 2017. The white paper was Kik’s primary marketing document for the entire, one trillion Kin token sale. (SEC4, Heinke Dep. Tr., at 99:16-25). 19. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 21 of 143 that Kin provided for developers and consumers.”). Kik further disputes the suggestion that existence of a slide presentation entitled “Communications Strategy” means that Kik made the same statements to potential Pre-sale participants as it did to potential TDE purchasers. Kik further disputes that the “road show,” which was targeted to Pre-sale investors, was also aimed at TDE purchasers. SEC8, Livingston Inv. Tr. 400:9-401:13; Inv. Ex. 202 at KIK_00107750. Further, the cited presentation expressly distinguishes between the “crypto community” and the “tech community” as different potential participants. SEC39 at KIK_00107739. Otherwise, undisputed that the cited document (SEC32) was one iteration of a presentation entitled “Communications Strategy” and that it contains the quoted text. 44. The “communications strategy” summarized how the Investor Roadshow would be directed at both SAFT participants and public buyers as follows: (SEC32, Inv. Ex. 56, at COINFUND006085). In Response to No. 44: Disputed to the extent the SEC suggests that Kik was conducting a “single offering” on the ground that it had a “communications strategy,” even though that strategy involved communications focused on two distinct events: the token distribution event, and the Pre-sale. See also Response No. 43. Kik further objects to this statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. Otherwise, undisputed that the cited document (SEC32) was one iteration of a 20. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 22 of 143 presentation entitled “Communications Strategy” and that it contains the reproduced slide. 45. Pursuant to its communications strategy, Kik planned to speak to the public about the “Public sale” phase at the same time it would discuss the “Pre-sale” phase with accredited investors. (Answer ¶ 59). In Response to No. 45: Disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. The fact that Kik engaged in separate communications with distinct groups over the same time period simply has no bearing on whether the Pre-sale was validly conducted pursuant to Regulation D. Kik further objects to this statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract,” see Response No. 31, and to whether the Pre-sale was validly conducted pursuant to Regulation D. Otherwise, undisputed that Kik’s communications strategy involved making some statements to potential TDE purchasers at the same time it was making separate communications to potential Pre-sale participants. 46. The May 22, 2017 Board presentation included the following “Presale Timeline,” which illustrates Kik’s plan to simultaneously market Kin to both the general public and potential SAFT participants: 21. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 23 of 143 (SEC, Dep. Ex. 7, at KIK_00106886). In Response to No. 46: Disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. As explained in Mr. Philp’s declaration, Pre-sale participants and TDE purchasers received different documents and statements from Kik, and Kik did not distribute SAFT agreements or Private Placement Memoranda to TDE purchasers, unless any of the Pre-sale participants later independently decided to buy Kin in the TDE. Philp Decl. ¶¶ 32-36, 54-55, 66. Kik further notes that the SEC incorrectly states the date of the document cited at SEC30, KIK_00106868, which is May 23, 2017, not May 22. Kik further objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract,” see Response No. 31, and to whether the Pre-sale was validly conducted pursuant to Regulation D. Otherwise, undisputed that the slide reproduced above is one of several contained in the presentation at SEC30. 47. Kik’s white paper (SEC31, Dep. Ex. 12) was directed to both the general public and accredited, pre-sale investors simultaneously. (SEC10, Heinke Inv. Tr., at 243:24-244:23). In Response to No. 47: Undisputed that the target audience for the Whitepaper, which discuseed Kik’s general vision for Kin and the new Kin economy, was “a combination of [ ] both the presale investors and then actual users, because it discussed a lot about the applications and what you could do with the token[.]” 22. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 24 of 143 SEC10 Heinke Inv. Tr. 243:25-244:18; Philp Decl. ¶ 31; SEC14 Philp Inv. Tr. 210:7-15. 48. On May 23, 2017, Kik’s board voted to approve the timeline, the allocation of the ten trillion Kin, the split between a “pre-sale and public sale,” and the white paper. (Answer ¶ 60). In Response to No. 48: Disputed to the extent the SEC suggests the “split between a ‘pre-sale and public sale’” somehow constituted a single offering of Kin. See Response No. 37. Pre-sale participants and TDE purchasers received different documents and statements from Kik, and Kik did not distribute SAFT agreements or Private Placement Memoranda to TDE purchasers, unless any of the Pre-sale participants later independently decided to buy Kin in the TDE. Philp Decl. ¶¶ 32- 36, 54-55, 66. Otherwise undisputed that on or about May 23, 2017, Kik’s Board voted to approve the timeline, allocation of Kin, and the Whitepaper. D. KIK PUBLICLY ANNOUNCED THE OFFERING OF ONE TRILLION KIN TOKENS 49. On May 25, 2017, Kik announced a plan to offer and sell one trillion Kin through publishing a white paper, issuing press releases, and statements by Kik’s CEO during a “fireside chat” at an event in New York City called the “Token Summit.” (Answer ¶ 8; SEC22, Mougayar Dep. Tr., at 96:13-20; SEC31, Dep. Ex. 12) Before the announcement, Kik’s chief marketing officer emailed Kik’s CEO that “the primary audience for the initial announcement really is an investor community” and “the Token Summit is ideal.” (Answer ¶ 62; SEC33, Inv. Ex. 84). In Response to No. 49: Disputed to the extent the SEC offers it for the proposition that the audience at the Token Summit announcement in fact was made up of an “investor community” and to the extent that the SEC suggests that the makeup of the audience indicates whether Kik lead purchasers to expect profits primarily from the efforts of others. Kik further disputes this statement because it is incomplete and misleading. In the email cited at SEC33, Erin Clift, Kik’s Chief Marketing Officer, actually said she “believe[d] that the best first announcement is with an audience of people who truly understand the power of crypto – and the nuances around it. This is why I think the Token Summit is ideal.” Id. As the creator of the conference testified, the audience was comprised of a “a lot of entrepreneurs mostly” and “some” VC-types, but “not a lot.” SEC33, Mougayar Tr. 164:15-25. Kik further objects to this statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. Otherwise 23. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 25 of 143 undisputed that on May 25, 2017, Kik announced a plan to offer and sell one trillion Kin through publishing a white paper, issuing press releases, and statements by Kik’s CEO during a “fireside chat” at an event in New York City called the “Token Summit.” 50. The Token Summit was created and organized by one of Kik’s consultants. (SEC22, Mougayar Dep. Tr., at 36:13-38:14). Before the announcement, the consultant emailed Kik’s chief marketing officer that “we expect 350-400 attendees, a mix of crypto-token crowd, entrepreneurs, business managers, investors/VCs, wall street types, regulators and media.” (SEC34, Dep. Ex. 135; SEC22, Mougayar Dep. Tr., at 88:17-89:5). The actual number of attendees was close to 700, requiring building security to shut a number of people out because of fire regulations. (SEC22, Mougayar Dep. Tr., at 90:15-16; SEC4, Heinke Dep. Tr., at 134:16-135:1). In Response to No. 50: Undisputed. Kik objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. 51. At the time he spoke at Token Summit, as well as when he subsequently appeared on CNBC and spoke at other events relating to Kin, Kik’s CEO had authority to speak on behalf of Kik regarding the Kin project. (SEC35, November 12, 2019 Stipulation, at ¶¶ 14-41). In Response to No. 51: Undisputed. 52. A video of the Token Summit fireside chat was posted on YouTube. (Answer ¶ 62; SEC36-A, May 25, 2017 Token Summit (“Token Summit”) (video), SEC36-B, Token Summit (transcript)). In Response to No. 52: Undisputed that such a video was posted. Disputed to the extent the SEC suggests that the video was viewed or received by any actual Pre- sale participate or TDE purchaser. 53. Kik posted the white paper on its website, making the document freely accessible on the Internet. (SEC4, Heinke Dep. Tr., at 127:5-25). The white paper was Kik’s primary marketing document for the entire, one trillion Kin token sale. (Id. at 99:16-25). 24. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 26 of 143 In Response to No. 53: Disputed that the Whitepaper “was Kik’s primary marketing document for “the entire, one trillion Kin token sale.” As Kik’s former CFO testified that, it was the “main marketing document” only for the token sale, not the Pre-sale or SAFT. SEC4, Heinke Inv. Tr. 99:21-25. Further disputed that there was a single sale. See Response No. 37. Otherwise, undisputed. 54. The whitepaper described as follows Kik’s plan to sell Kin and to “driv[e] demand [for] and fundamental value” of the token: 1. Kik’s Vision As a company, Kik has been searching for a sustainable monetization model that does not compromise user experience or privacy. Rather than opt for mass display advertising or the selling of consumer data, Kik has decided to adopt a decentralized organizational model. Its goal is to encourage the development of a digital services ecosystem that is fair and open. Kik prefers to be a participant rather than a landlord in this user-first economy. To foster an ecosystem that is not only open and decentralized but also more compelling than its traditional counterpart, Kik must create a series of new products, services, and systems. Building a decentralized system is a complex process, and the transition to it must be done in a measured and responsible way over time. The following subsections outline Kik’s plan for launching an entirely new platform: the Kin Ecosystem. A new digital currency The first step is to create a new cryptocurrency: Kin. Related to the word “kinship,” and conveying a feeling of being connected to community, the Kin identity and currency is designed specifically to bring people together in a new shared economy. But simply creating a digital currency is not enough. For a cryptocurrency to be viable, it must also be useful and valuable. To establish an economy around the new currency, Kik must help to establish Kin’s fundamental value. Building fundamental value Kik has been experimenting with forms of in-app currency since 2014, when it launched Kik Points. In launching Kik Points, the company wanted to see if users of its chat app would be eager to earn and spend a centralized digital currency. Key to this innovation was the notion that users would not have to purchase Kik Points but could instead earn them within the app. Millions of Kik users participated, resulting in an average monthly transaction volume nearly three times higher than the global transaction volume of Bitcoin. 25. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 27 of 143 Today, Kik is one of the world’s most used chat apps and the fifth most- searched term in the iOS App Store. The millions of people who use Kik each month are in a unique position to demonstrate how cryptocurrency economies might form and function in the context of a large, mainstream user base. Kik will build fundamental value for the new currency by integrating Kin into its chat app. Indeed, Kin will be Kik’s primary transaction currency, and Kik will be the first service to join the Kin Ecosystem. In the future, users will be able to earn Kin by providing value to other members of the Kik digital community through curation, content creation, and commerce. Kik users will be able to spend Kin on products, services, and other valuable assets offered by merchants, developers, influencers, and other participants. Kin will sit at the center of a new digital economy inside Kik, driving demand and fundamental value for the cryptocurrency. Its resulting value will enable the launch of an economic incentive mechanism, the Kin Rewards Engine, to further grow the ecosystem. (SEC31, Dep. Ex. 12, at 5-6). In Response to No. 54: Disputed that the Whitepaper says that Kik will “driv[e] demand [for] and fundamental value” of the token. The correct and complete quote actually says that Kin’s digital economy will drive value for the cryptocurrency: “Kin will sit at the center of a new digital economy inside Kik, driving demand and fundamental value for the cryptocurrency. Its resulting value will enable the launch of an economic incentive mechanism, the Kin Rewards Engine, to further grow the ecosystem.” SEC31 at KIK000006. Otherwise, undisputed. 55. The white paper further stated that, “[i]n order to finance the Kin roadmap, Kik will conduct a token distribution event that will offer for sale one trillion units out of a 10 trillion unit total supply of Kin” (id. at 21), and that, “[t]o be notified of updates regarding the token distribution event, participants are invited to provide their email address at http://kin.kin.com” (id. at 23; Answer ¶ 64). The white paper did not identify a date on which the token distribution event would occur. Consistent with Kik’s prior plans, the white paper also explained that three trillion Kin (30%) would be allocated to Kik under a future vesting schedule, and six trillion Kin (60%) would be allocated to a new “Kin Foundation.” (SEC31, Dep. Ex. 12, at 21). In Response to No. 55: Disputed to the extent the SEC suggests that that Kik was conducting a “single offering” or that it made the same statements and 26. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 28 of 143 representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Kik knew that Pre-sale participants were a “totally different” user base than those buying in the TDE. SEC10, Heinke Inv. Tr. 142:4-15. Purchasers in the TDE “were buying [Kin] to integrate or primarily buying it for integrating into the ecosystem and having coin to use in the ecosystem.” Id. As Kik’s Board presentation from May 2017 made clear, there were two distinct sales: the Pre-sale involving a SAFT to accredited investors only, and a TDE to the public. SEC30 at KIK_00106892. Otherwise undisputed. 56. Also on May 25, 2017, Kik’s CEO appeared on CNBC; Kik and Kik’s CEO posted online on social media and Medium; Kik released a professionally prepared promotional video that was uploaded to YouTube; and Kik issued a press release entitled “Kik to Integrate Kin Tokens as First Mainstream Adoption of Cryptocurrency.” (Answer ¶ 63; SEC37, Inv. Ex. 200; SEC38, Inv. Ex. 88). In Response to No. 56: Disputed to the extent the SEC suggests that publication of any of those statements alone is sufficient to show that any TDE purchaser both saw and relied on the statements. Otherwise undisputed. Kik further objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. E. BETWEEN MAY AND SEPTEMBER 2017, KIK PROMOTED THE SALE OF ONE TRILLION KIN THROUGH A “WHITE PAPER,” SEVERAL VIDEOS, SOCIAL MEDIA, AND A MULTI-CITY “ROADSHOW” 57. Following the May 25, 2017 announcement, Kik advertised the “Kin economy,” and, in doing so, its employees attended events in San Francisco, China, the United Kingdom and Canada. Kik planned a “Participant Roadshow,” as outlined in its Communications Strategy, which included stops in San Francisco, China, London, and Toronto, and included events targeted at developers and other potential participants in the Kin economy, including the “TechCrunch” conference in Shenzhen, China, the “Botness” conference in New York City, the “Bitcoin Meetup” in San Francisco, the “Meetup” at Spotify’s office in New York, and a “Meetup” in London. Kik’s CEO made public statements during this “roadshow,” including by speaking on panels at 27. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 29 of 143 conferences and in “fireside chats” with local media (Answer ¶ 69; SEC14, Philp Inv. Tr., at 332:18-23; SEC39, Inv. Ex. 202; SEC35, November 12, 2019 Stipulation, at ¶¶ 14-41). In Response to No. 57: Disputed to the extent these statements suggest that publication of any of those statements alone is sufficient to show that any TDE purchaser both saw and relied on them. Further disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Otherwise, undisputed. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. 58. The “Participant Roadshow,” as outlined in the Communications Strategy, was not specifically targeted at developers and other potential participants in the Kin economy, but was instead directed at accredited investors, several of whom would ultimately purchase Kin via SAFT (e.g., Pantera Capital and Polychain Capital): (SEC39, Inv. Ex. 202, at KIK_00107750; see also SEC8, Livingston Inv. Tr., at 400:9-401:18). In Response to No. 58: Disputed. The Participant Roadshow was targeted at developers or other potential participants. As Kik’s Director of Corporate Development testified, the “target audience for the roadshow” was “largely, 28. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 30 of 143 developers of consumer applications.” SEC14, Philp Inv. Tr. 334:13-16. Different events in various cities focused on different groups of people. Id. 335:9-25. 59. At least one Kik executive expected that persons who would be interested in participating in Kik’s public sale would include “speculators” who “are there to make a profit. And that is it. They couldn’t care less about anything else.” (SEC40, Deposition of Eran Ben-Ari (“Ben- Ari Dep. Tr.”), at 69:15-70:3; SEC41, Investigative Testimony of Eran Ben-Ari, (“Ben-Ari Inv. Tr.”), at 138:14-20.) He formed this view based on “internal discussions with people within the company” including Kik’s CEO and CFO, and based on discussions with Kik’s consultants during an “offsite . . . to better understand who usually participates in these TDEs [token distribution events].” (SEC41, Ben-Ari Inv. Tr., at 140:9-22). In Response to No. 59: Disputed to the extent the SEC suggests these were the only persons the cited Kik executive said would be interested in participating in the public sale. This individual, Kik’s former Chief Product Officer testified that in addition to “some spectators,” he believed enthusiasts and Kik users would participate in the TDE. SEC41, Ben-Ari Inv. Tr. 138:14-20. Otherwise undisputed. Kik further objects to these statements as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. 60. Kik personnel attended events in various cities to tell people about the Kin project and the idea of buying Kin tokens (SEC14, Philp Inv. Tr., at 334:7-11), and to raise awareness of the ecosystem as a whole and Kik’s planned token distribution event (Id. at 394:2-11; see also SEC35, November 12, 2019 Stipulation, at ¶¶ 8-13). In Response to No. 60: Disputed to the extent the SEC suggests that publication of any of those statements alone is sufficient to show that any TDE purchaser both heard and relied on the statements. Further disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Otherwise undisputed. Kik further objects to this statement on the grounds that it is irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See Response No. 31. 29. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 31 of 143 61. Many of Kik’s Roadshow events were videotaped and posted on YouTube. (Answer ¶¶ 7, 70). In Response to No. 61: Disputed to the extent the SEC suggests that publication of any of those statements alone is sufficient to show that any TDE purchaser saw and relied on the statements. Further disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Otherwise undisputed. Kik objects on the grounds that it is irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See Response No. 31. 62. During the same Roadshow in which Kik made public statements about Kin, Kik also met privately with individuals to discuss Kin. These individuals included accredited investors who were interested in participating in sales of digital tokens. (SEC14, Philp Inv. Tr., at 332:18- 23, 336:7-13, 338:12-23). For example, while Kik was in New York City during the week of the Token Summit, Kik met with the investors Pantera Capital and Maple Ventures. (SEC10, Heinke Inv. Tr., at 132:20-12; SEC14, Philp Inv. Tr., at 338:25-339:4; SEC23, Morehead Inv. Tr., at 26:6- 28:9). In addition, while in San Francisco, Kik met with representatives of Fortress Investment Group. (SEC14, Philp Inv. Tr., at 337:14-338:3; SEC42, Investigative Testimony of Michael Hourigan (“Hourigan Inv. Tr.”), at 38:11-42:12, 43:20-46:1). Kik’s written Communications Strategy stated with respect to the Roadshow, “Goal: [Kik’s CEO] to meet with top 2-3 crypto participants in each market.” (SEC39, Inv. Ex. 202 at KIK_00107750). In Response to No. 62: Disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Otherwise undisputed. Kik further objects to this statement as irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract.” See Response No. 31. 63. In addition to traveling to multiple cities, Kik posted to on-line social media such as Medium, Twitter, Reddit, and Slack regarding the Kin project. (Answer 1 71). 30. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 32 of 143 In Response to No. 63: Disputed to the extent the SEC suggests that publication of any statements on social media alone is sufficient to show that any TDE purchaser saw and relied on the statements. Further disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Otherwise undisputed. Particularly in the absence of evidence that any purchaser relied on any of the statements, Kik objects to the statement as irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See also Response 31. 64. By June 1, 2017, Kik was sending emails to persons who had signed up to receive updates about Kin, stating that Kik would “be back in touch over the coming weeks with more details on the product, the registration process and token event.” (See, e.g., SEC43, COINFUND012819; SEC44, PANT-000000051). In Response to No. 64: Disputed to the extent the SEC suggests that publication of any statements on social media alone is sufficient to show that any TDE purchaser saw and relied on the statements. Further disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Otherwise undisputed. Particularly in the absence of evidence that any purchaser relied on any of the statements, Kik objects on the grounds as irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See also Response 31. 65. Between June 14, 2017 and June 16, 2017, Kik’s CEO traveled to New York City in connection with Kik’s sale of Kin. (SEC35, November 12, 2019 Stipulation, at 1 9). In Response to No. 65: Undisputed. 66. Between June 18, 2017 and June 22, 2017, Kik’s CEO traveled to Shenzhen, China, where, on June 20, 2017, he spoke at an event entitled “TechCrunch Shenzhen.” (Id. at 1 23). Kik’s CEO’s statements at TechCrunch Shenzhen were recorded on video. (Id. at 1123-26; SEC45-A, June 20, 2017 TechCrunch Shenzhen (“TechCrunch”) (video); SEC45-B, TechCrunch (transcript)). 31. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 33 of 143 In Response to No. 66: Disputed to the extent the SEC suggests that publication of the video alone is sufficient to show that any TDE purchaser saw and relied on the statements. Further disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Otherwise undisputed. Particularly in the absence of evidence that any purchaser relied on any of the statements, Kik objects on the grounds that it is irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See also Response No. 31. 67. Between June 27, 2017 and June 28, 2017, Kik’s CEO traveled to San Francisco, California, where, on June 27, 2017, he spoke at an event entitled “An Evening with Ted Livingston.” (SEC35, November 12, 2019 Stipulation, at ¶ 27). Kik’s CEO’s statements at “An Evening with Ted Livingston” were streamed on-line live and recorded on video. (Id. at ¶¶ 27-30; SEC46-A, June 27, 2017 An Evening with Ted Livingston (“An Evening”) (video); SEC46-B, An Evening (transcript); SEC46-C, An Evening (screen capture)). In Response to No. 67: Disputed to the extent the SEC suggests that publication of the video alone is sufficient to show that any TDE purchaser relied on the statements. Further disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Otherwise undisputed. Particularly in the absence of evidence that any purchaser relied on any of the above-mentioned statements, Kik objects on the grounds as irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See also Response No. 31. 68. Between July 4, 2017 and July 7, 2017, Kik’s CEO traveled to London in connection with Kik’s sale of Kin. (SEC35, November 12, 2019 Stipulation, at ¶ 12). And, on August 1, 2017, Kik’s CEO appeared on “Finance Magnates’ Blockchain Podcast,” a video podcast that was and is available on the Internet. (Id. at ¶¶ 31-33; SEC47-A, August 1, 2017 Finance Magnates’ Blockchain Podcast (“Finance Magnates”) (video); SEC47-B, Finance Magnates (transcript); SEC47-C, Finance Magnates (screen capture)). 32. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 34 of 143 In Response to No. 68: Disputed to the extent the SEC suggests that publication of the video alone is sufficient to show that any TDE purchaser saw and relied on the statements. Further disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Otherwise undisputed. Particularly in the absence of evidence that any purchaser relied on any of the statements, Kik objects as irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See also Response No. 31. 69. On August 14, 2017, Kik’s CEO spoke at an event in Toronto, Canada entitled “Fintech Canada: Bitcoin and Ethereum Summit.” (SEC35, November 12, 2019 Stipulation, ¶¶ 34- 37). Registration for the event was open to the public. (SEC22, Mougayar Dep. Tr. 162:18-21). The talk was recorded on video and posted on the Internet. (SEC35, November 12, 2019 Stipulation, ¶¶ 34-37; SEC48-A, August 14, 2017 Fintech Canada: Bitcoin and Ethereum Summit (“Fintech Canada”) (video); SEC48-B, Fintech Canada (transcript); SEC48-C, Fintech Canada (screen capture); SEC22, Mougayar Dep. Tr., at 167:23-170:8). In Response to No. 69: Disputed to the extent the SEC suggests that publication of the video alone is sufficient to show that any TDE purchaser saw and relied on the statements. Further disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Otherwise undisputed. Particularly in the absence of evidence that any purchaser relied on any of the statements, Kik objects to the SEC’s statements as irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See also Response No. 31. 70. Between September 6, 2017 and September 8, 2017, Kik’s CEO traveled to New York City (again), where, on September 7, 2017, he spoke at an event entitled “New York City Ethereum.” (SEC35, November 12, 2019 Stipulation, ¶¶ 38-41). The talk was recorded on video and posted on the Internet. (Id.; SEC49-A, September 7, 2017 New York City Ethereum (“NYC 33. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 35 of 143 Ethereum”) (video); SEC49-B, NYC Ethereum (transcript); SEC49-C, NYC Ethereum (screen capture)). In Response to No. 70: Disputed to the extent the SEC suggests that publication of the video alone is sufficient to show that any TDE purchaser saw and relied on the statements. Further disputed to the extent the SEC suggests that Kik was conducting a “single offering” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response No. 43. Otherwise undisputed. Particularly in the absence of evidence that any purchaser saw or relied on any of the statements, Kik objects to the SEC’s statements as irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See also Response No. 31. 71. At least one purchaser of Kin viewed some or all of these public appearances on YouTube before making his purchases. (See, e.g., SEC50, Deposition of Harrison Wang (“Wang Dep. Tr.”), at 43:5-14, 122:4-13). In Response to No. 71: Disputed. The SEC cites to only one purchaser, Harrison Wang, who identified generally only two public appearances he supposedly saw (i.e., a “YouTube video where Ted gave that talk about driving price up with Kin adoption and Kik,” and “Ted Livingston at [a] conference”) without specifically identifying what appearances those were. SEC50, Wang Tr. at 43:5-14, 122:4-13. In his testimony more than a year earlier, Mr. Wang said only that he read the Whitepaper and some articles. SEC73, Wang Inv. Tr. 14:19-23. He did not recall that he had even seen a video until the week of his deposition more than a year later, after this suit was filed. SEC50, Wang Tr. 122:14-123:24. And he did not remember when he watched the video and did not even watch the entire thing. Id. Further disputed to the extent the SEC suggests that it reflects what any purchaser other than Harrison Wang saw. Kik further objects that the subjective view of a single purchaser is irrelevant and immaterial to whether Kik’s sales of Kin constituted an “investment contract,” see Response No. 31, as are marketing statements in light of the merger clause in the TDE’s Terms of use. 34. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 36 of 143 F. KIK OFFERED AND SOLD THE ONE TRILLION KIN THROUGH CONTRACTS CALLED “SAFTS” AND THROUGH A “PUBLIC SALE” i. Kik Conducted One Offering of Kin In Two Phases, One That Included A SAFT And One That Did Not. 72. From May 25, 2017 through September 11, 2017, Kik offered and sold the right to receive Kin in the future, conditioned on a “Network Launch,” to “accredited investors” as defined in SEC Regulation D. Kik sold such rights to investors pursuant to contracts called Simple Agreements For Future Tokens (“SAFTs”). The SAFT stated that Kik “hereby issues to the Purchaser the right (“the Right”) to certain units of Kin (the “Token” or “Kin”), subject to the terms” of the SAFT. If the “Network Launch” occurred, the investors who entered into a SAFT with Kik would receive Kin at a discounted price. These SAFT investors would receive 50 percent of their allotted tokens upon Network Launch, and their remaining tokens the following year (SEC51, Dep. Ex. 52; Answer ¶ 1).3 In Response to No. 72: Undisputed. 73. From May 25, 2017 through September 26, 2017, Kik offered and sold Kin to the general public through a process that culminated in the Network Launch, which Kik also referred to as a “public sale” or “token distribution event.” (Answer ¶ 31). In Response to No. 73: Disputed to the extent the SEC suggests that Kik was conducting a “single offering.” See Response No. 37. Otherwise undisputed. 74. As Kik’s CEO explained to an audience in San Francisco, Kik sold Kin through SAFTs and to the public as part of a single sale of 10% of the total number of Kin that Kik planned to create: So, maybe this is, like – the allocation is, we’re selling 10%. So, we’re creating 10 trillion Kin tokens. You know, why a trillion? Because consumers, when they post in our group chat, they don’t want to earn .0002 Bit coin, they’d rather have two Kin. So you know, we just always look at 3 SEC51, Dep. Ex. 52, is a sample of Kik’s form SAFT. 35. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 37 of 143 this group (inaudible) so that’s why so many. We’re going to take 1 trillion of those tokens and then sell it in a token distribution event, and we’re going to do half presale through institutional investors, which is already completely spoken for (inaudible) and then half through a public distribution event, and that distributor event. . . . (SEC44-B, An Evening (transcript), at 55:24-56:20). In Response to No. 74: Disputed to the extent the SEC suggests that Kik was conducting a “single offering,” or that Kik made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response Nos. 37, 46. Otherwise undisputed. Particularly in the absence of evidence that any purchaser saw or relied on any of the statements, Kik objects to the SEC’s statements as irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See Response No. 31. 75. Similarly, Kik’s CEO described the structure of the Kin sale to an audience in China as follows: There’ll be three blocks of Kin. One block will be the 10 percent we’re selling this summer, one block will be the 30 percent set aside for Kik, and that will vest 10 percent per quarter for 10 quarters. And then the third block will be the 60 percent set aside for this not-for-profit Kin Foundation. So, for that 30 for Kik, as it vests into the market, we will be able to sell it on to the exchanges like anybody else, to fund operations, to provide a financial exit for employees and investors, really to do with whatever we want. (SEC43-B, TechCrunch (transcript), at 21:4-14). In Response to No. 75: Disputed to the extent the SEC suggests that Kik was conducting a “single offering,” or that it made the same statements and representations to potential Pre-sale participants and potential TDE purchasers. See Response Nos. 37, 46. Otherwise undisputed. Particularly in the absence of evidence that any purchaser saw or relied on any of the statements, Kik objects to the SEC’s statements as irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See Response No. 31. 76. Consistent with Kik’s CEO’s statements, Kik did not create different classes of Kin. All of the one trillion Kin that Kik sold were identical and fungible. (Answer ¶ 180). 36. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 38 of 143 In Response to No. 76: Undisputed that Kik did not create different classes of Kin, and that all Kin were identical and fungible. Disputed that this was “consistent with Kik’s CEO’s statements” as the SEC does not identify any such statements. Further disputed that Kik conducted a single offering of one trillion Kin. See Response No. 31. ii. By Entering Into The SAFTs, Kik Gave Itself A Deadline To Complete The Public Sale. 77. Kik’s SAFT (see, e.g., SEC51, Dep. Ex. 52) provided that purchasers who contracted with Kik would receive half of their allotment of tokens upon the completion of the public portion of the sale, which the SAFT called the “Network Launch”, and half the following year: (SEC51, Dep. Ex. 52; Answer ¶ 1). The “Network Launch” was defined as “a bona fide transaction or series of transactions, pursuant to which the Company will sell Kin to the general public in a publicized product launch of Kin through the instantiation of Kin via deployment on the Ethereum Blockchain” – i.e., the “tranches” of Kin that Kik planned to sell the general public. (SEC51, Dep. Ex. 52). In Response to No. 77: Disputed to the extent the SEC suggests that Kik was conducting a “single offering.” See Response No. 37. Although the word “tranche” appears in other internal Kik documents, the SEC does not cite them here, and other 37. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 39 of 143 evidence makes clear that Kik did not consider the Pre-sale and TDE to be separate “tranches” of a single offering. Otherwise undisputed. 78. Purchasers who bought Kin via SAFT (who Kik sometimes referred to as “SAFT participants”) paid a sum certain at the time they entered into the SAFTs, but Kin would ultimately be delivered in an amount that reflected the discounted price – that is, they paid only 70 percent of the price at which the Kin would be sold to the public during the public portion of the sale. Thus, the number of Kin received by the SAFT investor and the per-Kin price for the Kin received were contingent on the pricing of Kin during the public portion of the sale. Specifically, the SAFT stated in relevant part, under Section 2: (SEC51, Dep. Ex. 52; see also SEC52, Dep. Ex. 16).4 Stated another way, because SAFT participants paid a discounted price for the Kin based on the public sale price, the number of Kin that SAFT participants would ultimately receive was contingent on the public sale pricing of Kin. (SEC51, Dep. Ex. 52, at KIK000068; SEC4, Heinke Dep. Tr. 170:2-21). In Response to No. 78: Disputed to the extent that SEC suggests that the Kin would necessarily be delivered to SAFT holders without regarding to the SAFT terms governing such delivery, including the launch of the network. Otherwise undisputed. 79. SAFT participants would receive 50% of their Kin upon the completion of the “Network Launch” and 50% a year later, both without further action on the part of the purchaser. The SAFT stated that “the Right created by this instrument . . . cannot be resold except in compliance with the applicable country’s laws.” (SEC51, Dep. Ex. 52, at KIK000069). The SAFT placed no resell restrictions on Kin once transferred to SAFT participants. Kik also did not place 4 5 SEC52, Dep. Ex. 16, is an example of Kik’s private placement memorandum (“PPM”) that Kik provided to accredited SAFT participants but not to general public purchasers. (Answer ¶ 90). 38. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 40 of 143 restrictions on the Kin distributed to persons who bought during the public sale. (Answer ¶¶ 1, 12, 88). In Response to No. 79: Disputed to the extent that the SEC suggests that the SAFT placed no resell restrictions on SAFT participants. Resale purchasers were expressly prohibited from reselling the security itself, SEC51 at KIK000066, 69, and the SEC has cited no evidence in supports of its proposition as required by Fed. R. Civ. P. 56(c) and L.R. 56.1(d). Otherwise undisputed. 80. The SAFTs would expire if the “Network Launch” (i.e., the completion of the sale to the public) did not occur by September 30, 2017. Kik retained the right to extend that time frame by sixty days, until November 30, 2017. (Answer ¶ 92). In Response to No. 80: Undisputed. 81. If the Network Launch did not occur by the deadline, Kik’s SAFT would “terminate,” meaning that SAFT participants would not receive Kin, and Kik would be required to return 70% of the invested cash to each purchaser: (SEC51, Dep. Ex. 52; see also Answer ¶ 1; SEC10, Heinke Inv. Tr., at 392:20-295:19). In Response to No. 81: Undisputed. 39. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 41 of 143 82. The SAFT made no provision for a purchaser to cancel the agreement and obtain a refund, absent a condition set forth in the SAFT. (SEC51, Dep. Ex. 52). In Response to No. 82: Undisputed. 83. Kik provided potential SAFT participants with a private placement memorandum (“PPM”) (SEC52, Dep. Ex. 16), but it did not provide this information to general public purchasers. (Answer ¶ 90). The PPM included a “Company Overview” about Kik, biographies of Kik’s “Directors and Management,” and a description of the Kin project, but did not contain information about Kik’s financial history. (SEC52, Dep. Ex. 16). The PPM provided that “[t]he SAFTs described in this Memorandum are subject to restrictions on transferability and resale and may not be transferred or resold” (id. at KIK000038), but it did not place any restrictions on the resale or transferability of the Kin purchased pursuant to the SAFT. (Answer ¶ 88). In Response to No. 83: Disputed. The PPM contained pages of information about the Company’s history, its users and ranking in the Apple App Store, competition with Facebook Messenger and WhatsApp, its core product missions and what each was building, among other information. SEC52 at KIK000041-47. Otherwise undisputed. 84. On May 24, 2017, the day before Kik publicly announced about Kin, Kik executives met in New York City with the founder of a hedge fund, Pantera Capital, and discussed the hedge fund’s potential interest in signing a SAFT. (Answer ¶ 89). In Response to No. 84: Undisputed. 85. At its May 24, 2017 meeting with Pantera’s founder, Kik described how it would use Kik Messenger to create interest in the tokens. (SEC23, Morehead Inv. Tr., at 26:4-31:5). That hedge fund later entered a SAFT and paid Kik $15 million, the highest amount by any Kin buyer in 2017. (SEC53, Dep. Ex. 40; SEC10, Heinke Inv. Tr., at 362:4-7). In Response to No. 85: Disputed. Kik explained to Pantera’s founder, Mr. Morehead, how “the messenger app would be the first service provided on this new Kin Ecosystem,” and Mr. Morehead “thought that by starting with a community of 40. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 42 of 143 20 million active users they would have a better chance of building a decentralized social network than just two guys in a garage.” SEC23, Morehead Tr. 30:8-31:4. Otherwise undisputed. 86. During the same New York City trip, Kik executives also met with representatives of another potential SAFT participant, which later entered into a SAFT with Kik. (SEC4, Heinke Dep. Tr., at 132:20-133:12). In Response to No. 86: Undisputed. 87. Following its May 2017 public announcement of Kin, Kik sent select potential SAFT participants term sheets that described Kik’s plan to raise $50 million through SAFTs. (See, e.g., SEC54, KIK_00017702; SEC55, KIK_00017698). In Response to No. 87: Disputed that Kik described a plan to “raise” $50 million. The attached term sheets identify the “amount of rights offering,” and state that purchasers will be entitled to receive certain numbers of Kin based on the amounts paid for the rights to purchase units of Kin. SEC55 at KIK_0017699. Otherwise undisputed. 88. Kik advised Kin purchasers who purchased pursuant to the SAFT that the SAFT was a security: THE OFFER AND SALE OF THIS SECURITY INSTRUMENT HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM. (Answer ¶ 91; SEC51, Dep. Ex. 52). In Response to No. 88: Undisputed. 89. On June 14, 2017, Kik’s outside counsel sent an email to Kik’s CFO with the subject line “Draft email,” and which stated in the body of the email: 41. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 43 of 143 At the last Board meeting, before Fred and Jim had to drop off the call, the proposed course of action suggested, to ensure minimum risk to the Company and the Board (in recognition of the frothiness of the cryptocurrency markets generally at this time), was to conduct a $100MM pre-sale and eliminate the “public” token distribution event (TDE). The conversion of the SAFT rights into Kin would occur at the time the Kin ecosystem was fully functional versus at the time there was a minimal viable product. During the remainder of the Board call (after Fred and Jim’s departure), the discussion centered on an option whereby the Company would conduct a $75MM pre-sale, and a $25MM public TDE at the time the Kin ecosystem was fully functional (which would be beyond the anticipated summer 2017 event). After the Board meeting, management had an opportunity to consider 2 things – whether a TDE at $25MM (total raise of $100MM including the pre-sales) would maintain the integrity of the discounts communicated to pre-sale investors and whether investors contacted already for the pre-sale would view negatively a delay in the TDE to allow the Company to develop a fully functional Kin ecosystem. .... We reached out to the lead investor on the pre-sale [Pantera Capital] and talked about extending the time before the Company would conduct the [token distribution event] and offered the reason why and much to our surprise, the proposed delay was viewed adversely and would impact the lead investor’s decision to participate in the pre-sale. (SEC56, Inv. Ex. 181). In Response to No. 89: Undisputed that Kik’s outside counsel sent the cited email. Disputed as to the substance of the email. Mr. Heinke, Kik’s then CFO, did not recall Pantera saying that the TDE “would adversely affect his decision to invest.” SEC10, Heinke Inv. Tr. 361:12-24. Pantera’s founder, Mr. Morehead, further testified that any delay in the TDE would not have impacted his decision to invest. SEC23 Morehead Inv. Tr. at 116:1-12. Kik further objects to these statements as irrelevant and immaterial to whether the sales of Kin constituted an “investment contract.” See Response No. 31. Kik further objects to these statements as inadmissible hearsay that is inappropriate for summary judgment. 90. Kik wanted to be the first digital services application to launch a cryptocurrency. (Answer ¶ 95). 42. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 44 of 143 In Response to No. 90: Undisputed. 91. Kik executives were worried that the market for digital tokens might cool, or that other social media companies could offer digital assets before Kik and deprive it of significant first-mover advantages. (SEC9, Holland Inv. Tr., at 231:5-233:11; SEC10, Heinke Inv. Tr., at 406:1-411:7). In Response to No. 91: Disputed. Mr. Livingston was not concerned with pressure about being first to market. SEC10, Heinke Inv. Tr. 406:1-9. The only support cited by the SEC to the contrary is the statement of a Kik Board member that he believed the “feeling among the company” was to be ready to go to market with its idea, and that there was general discussion within the company about “trying to make this happen while the market was still open.” SEC9, Holland Inv. Tr. 231:5- 233:11. Kik further objects to statements of a third-party as inadmissible hearsay. 92. Kik entered into SAFTs with various participants from July 2017 until September 11, 2017, when it entered into the final 10 SAFT agreements. (SEC57, Inv. Ex. 133). In Response to No. 92: Undisputed. 93. In total, Kik received approximately $49 million from approximately 50 participants pursuant to the SAFTs. (Answer ¶¶ 1, 12, 93). As a result of the deadline contained in the SAFT, if the Network Launch did not occur by November 30, 2017, Kik would have been obligated to return around $35 million to Kin purchasers who bought pursuant to a SAFT purchasers. (Answer ¶ 93). In Response to No. 93: Disputed. Kik always had the option to negotiate a further extension with Pre-sale participants, if necessary. SEC10, Heinke Inv. Tr. 394:23- 395:5. Otherwise undisputed. 43. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 45 of 143 G. KIK MARKETED THE KIN OFFERING BY EMPHASIZING THE OPPORTUNITY TO PROFIT. i. Kik’s Publicly Described How Kin’s Price Could Increase. 94. Kik could control what it led purchasers of Kin to expect. (Answer ¶ 72). And in its public statements about Kin between May 25, 2017 and September 26, 2017, Kik described how the value and prices of Kin could increase in the future. In Response to No. 94: Disputed. Kik’s marketing materials did not describe the value or price of Kin rising. Starting with the publication of it Whitepaper, Kik emphasized its “goal [] to encourage the development of a digital services ecosystem that is fair and open,” and that “Kik prefers to be a participant rather than a landlord.” SEC31 at KIK000005. Kik planned to help “build fundamental value for the new currency by integrating Kin into its chat app,” and by being the “first service to join the Kin Ecosystem.” Id. Otherwise, undisputed as Kik’s Answer ¶ 72 states, that Kik could “only control what it led purchasers to expect, not what purchasers may or may not have known.” Id. (emphasis added). Kik further objects to this statement because it lacks any citation to the record as required by Fed. R. Civ. P. 56(c) and L.R. 56.1(d). 95. For example, Kik’s white paper made clear that the Kin that Kik planned to both sell to the public and retain in its treasury was at the core of Kik’s “monetization model” as a for- profit entity, and it included the following discussion: Kin will sit at the center of a new digital economy inside Kik, driving demand and fundamental value for the cryptocurrency. Its resulting value will enable the launch of an economic incentive mechanism, the Kin Rewards Engine, to further grow the ecosystem. The Kin Rewards Engine will use economic incentives to bring other digital services and applications into the decentralized Kin Ecosystem. Inspired by previous systems like Bitcoin’s block rewards and Steemit’s posting rewards, the Rewards Engine will create natural incentives for digital service providers to adopt Kin and become partners in the ecosystem. The ecosystem will not impose any unnecessary restrictions or tolls on monetization strategies, beyond ensuring common ethics and legality of content and transactions. As more partners join, the network effect of the Kin Ecosystem will grow, building the value of the currency, and in turn encouraging new partners to join this initiative. ... 44. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 46 of 143 Through a series of economic and technological transitions, and based on a new cryptocurrency called Kin, Kik will work toward creating the first open and sustainable alternative ecosystem of digital services for our daily lives. Economic incentives at the core of this ecosystem will ensure that all participants – users, founders, and digital service partners – will ultimately benefit from this work. (SEC31, Dep. Ex. 12, at 5, 6, 7). In Response to No. 95: Disputed. Kik was “searching for a sustainable monetization model that does not compromise user experience or privacy.” SEC31 at KIK000004. The Whitepaper does not refer to Kik’s status as a “for-profit” entity or suggest that Kin was at its “core,” and the SEC provides no cite suggesting otherwise. Otherwise undisputed that the document contains the quoted text. 96. As one Kik witness testified, the “entire vision is that as the ecosystem evolves and more demand, the value of the underlying token would increase.” (SEC14, Philp Inv. Tr., at 408:5- 408:7). In Response to No. 96: Undisputed. Kik’s “goal [] to encourage the development of a digital services ecosystem that is fair and open,” and that “Kik prefers to be a participant rather than a landlord.” SEC31 at KIK000005. Kik planned to help “build fundamental value for the new currency by integrating Kin into its chat app,” and by being the “first service to join the Kin Ecosystem.” Id. Kik further objects to this statement to the extent suggests it reflects the views of Kik as a whole or other executives. 97. Similarly, at the May 25, 2017 Token Summit in New York City, Kik’s CEO stressed Kin’s role in “monetization”: So that’s step number two is taking Kin, integrating into one of the largest consumer apps in the world to really give it value and to make Kik better and monetize Kik in a new way. But we didn’t stop there. We said, wait a second, if we give Kin value, could we use some of that value to spark the creation of a new ecosystem of digital services? There’s all these developers out there who have built these amazing things, but they can’t make any money. They don’t have the scale to monetize through advertising. And these huge companies who do have the scale are giving everything else away for free. So you have all these developers who are trying to build these amazing things but they’re just they’re going broke. (Answer ¶ 66; SEC36-B, Token Summit (transcript), at 5:13-6:2). 45. Case 1:19-cv-05244-AKH Document 78 Filed 04/24/20 Page 47 of 143 In Response to No. 97: Disputed. To the extent the SEC refers to Kin’s role in monetizing Kik, the statement refers to the ability of all free apps to monetize by adopting and using Kin. Otherwise undisputed. Particularly in the absence of evidence that any purchaser saw or relied on any of the statements, Kik objects to the SEC’s statements as irrelevant and immaterial to whether Kik’s offer or sale of Kin constituted an “investment contract.” See Response No. 31. 98. In its May 25, 2017 press release, Kik stated that it “will drive mainstream consumer adoption of Kin, establishing demand and fundamental value for the cryptocurrency.” (SEC38, Inv. Ex. 88). In Response to No. 98: Undisputed. 99. And, in its May 25, 2017 Medium post, Kik described a future “system” under which “Kin itself will become more valuable”: To maximize the chance of success, we’re dedicated the majority of