There is a major issue at stake here that should deeply concern anyone who cares about innovation in the US. I feel that HN is getting too caught up in the "scam" rhetoric and missing the bigger picture.

Whether or not Kin is a scam is an entirely different matter from whether or not Kin is a security. The SEC has jurisdiction over securities, but not over scams generally. There is a substantial debate as to whether or not Kin is a security. At the very least, a decent argument has been made that it is not. Clearly Kik and their lawyers think they can win. Personally, I largely agree with the logic laid out by Kik in their Wells Response to the SEC[1]. HN user elliekelly gave other great examples of of the difficulty in applying securities laws in cases like this[2].

We have to be very careful ceding ground to the SEC on what constitutes a security. This is absolutely worth fighting if you care about innovation in the United States. Many of the donors to Kik's Defend Crypto campaign couldn't care less about Kin. That is not the point. However, they do care immensely about the ramifications this case could have for businesses.

Businesses should be experimenting with new ways to finance companies. Perhaps that is through the sale of tokenized products or virtual currencies. Maybe they will provide great alternatives to venture capital over the long term. The label of "security" is an onerous one that creates massive obstacles to that innovation, especially for small companies. If the SEC succeeds in labeling Kin a security, what could have been the beginning of an innovative step towards new business models for fledgling startups is now forever regulated away into obscurity in the US. Meanwhile, businesses in other countries get to keep experimenting. The lackluster guidance and unpredictable enforcement has already led to companies taking their business elsewhere. It's a shame really.

If there is even a sliver of a doubt as to whether or not Kin constitutes a security, we should not be so quick to cede ground to the SEC. If we let the SEC go unchallenged, they will expand their reach, becoming more entrenched and widening the scope of what constitutes a security. Gaining ground back becomes harder over time, especially if the SEC wins court cases.

If Kin truly is a scam, we have a multitude of ways to prosecute them without involving the notion of securities. If nothing else, we always have regular contract or tort law if there were any contractual misrepresentations or intent to defraud. We don't need the label of "security" or action from the SEC for these kinds of claims, and this approach would be perfectly adequate. There are a number of government agencies that could bring these sorts of cases and fight for the public. Trying to prove it is a security at the same time is simply regulatory overreach.

Bottom line, maybe Kin is a scam (I don't think so), maybe someone should do something about it, but let's be careful about expanding the scope of what constitutes a security. There are plenty of ways to prosecute Kik without ceding that ground.

Side point: if the SEC succeeds in labeling Kin a security this creates all sorts of logical incongruities with past no-action letters or lack of enforcement in other areas. For example, if Kin is a security, why were the San Francisco Giants given a no-action letter for pre-sales of stadium seats "all of which were initially sold to fans prior to the Park’s opening day" which could be resold through "a service that would facilitate the resale of Charter and Club seat licenses"?[3] Sure, the Giants made a buyer represent that they were "not acquiring the [seat] as an investment and has no expectation of profit", but do we really think that stopped people from buying with the intent to profit? ICOs put the same representations in some of their pre-sale agreements, and we all know that did not stop people. What amount of intent to consume vs resale is appropriate? Broadway theater shows do the same sort of pre-sales of seat licenses, and we all know how much people profit from the resale of successful shows. This checks all of the boxes of the Howie Test (paid money, expectation of profit, dependency on managerial efforts). How come the SEC does not bring action there? I don't see fair and even enforcement of the law, which really brings the efficacy of it all into question.

[1] Kin Wells Response, https://www.kin.org/wells_response.pdf

[2] HN comment by elliekelly, https://news.ycombinator.com/item?id=20098363

[3] https://www.sec.gov/divisions/corpfin/cf-noaction/sfba022406...