10/13/20

Kik Gets Poured Out v SEC

Two weeks ago, Judge Alvin Hellerstein, Federal District Judge of the Southern District of New York, ruled that Kik’s $100,000,000 token distribution event was an illegal issuance of a security — an unregistered securities offering — based upon his analysis of the Howey Test.

It is important to note that Judge Hellerstein’s ruling was on the SEC’s Motion for Summary Judgment, a preliminary action prior to the case being heard. A Motion for Summary Judgment requires there to be little or no disagreement on the facts and thus becomes a matter of the application of only the law.

It would be fair to say that the Judge saw the facts as being agreed by the warring parties and thus was able to opine solely on the law. This rarely happens as there is usually some fact that is in dispute.

This case was a much-watched case and was touted as an important bellwether crypto case.

It is, in reality, a disappointment in its lack of fanfare and grandeur, a yawningly predictable Howey Test case as many — myself included — said from the beginning. Yawn. Sorry.

The United States Securities and Exchange Commission made the noted charge whilst Kik denied that their issuance of “Kin” was an unregistered securities offering.

The parties now have until 20 October 2020 to thrash out some form of an agreement. Stay tuned, amigos.

Understandably, the SEC has the upper hand in this matter whilst Kik is in the unenviable position of negotiating whilst at a huge disadvantage.

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08/19/19

Walmart Cryptocurrency, The Walmart Coin

A couple of weeks ago, Walmart announced that it had applied for a cryptocurrency patent thereby spawning speculation that Walmart Coin was being plotted.

It wasn’t Facebook with a crowd of the crypto Illuminati floating the idea of its Libra coin to be overseen by gnomes in Geneva. It didn’t attract a lot of fanfare, and it didn’t trigger Congressional hearings.

No, it was plain vanilla, retail behemoth Walmart, who without much pomp or even a twinge of circumstance said, “Hey, we might be interested in an actual application of that blockchain and cryptocurrency stuff.”

Who would have ever thunk it, Walmart?

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07/16/19

Libra v The Senate

Today, the US Senate grilled Facebook’s Chief Libracan about all things Libra.

David Marcus is actually the head of Facebook’s crypto wallet subsidiary, Calibra. He was offered up as a human sacrifice to the US Senate Banking Committee to lay out the Libra project.

Reports are he was able to walk out on his power.

David Marcus, head of Facebook's Calibra (digital wallet service), testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on "Examining Facebook's Proposed Digital Currency and Data Privacy Considerations" on Capitol Hill in Washington, U.S., July 16, 2019.

Marcus had the polished demeanor of a patient who had a regular, weekly colonoscopy or a barbed wire enema just to keep his game sharp. At times, I detected a bit of the third-grade-geometry-teacher-helping-one-of-the-slow-kids tone in his voice. Guy was masterful at giving non-answer answers.

In general, the hearings started out as a hate fest with various Senators laying out the case against Facebook as a lazy protector of privacy whose motto is “Move Fast, Break Things.”

The fact that Facebook had just agreed to a $5,000,000,000 fine to the Federal Trade Commission (3-2 vote with the Republicans on the FTC controlling the outcome) for privacy mischief probably contributed to the generally angry-high-school-wrestling-coach reception of guys like Sherrod Brown, Democrat of Ohio.

“Like a toddler who has gotten his hands on a book of matches, Facebook has burned down the house over and over and called every arson a learning experience.”

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06/8/19

Criminalizing Crypto in India

Big Red Car here getting ready for a trip to Sam’s.

So, I’m reading a few things and stumble on an interesting article about India and its attitude toward crypto. This is interesting for a number of reasons, not the least of which is that twenty percent of the world’s population lives in India.

Here is the famous Gateway to India which will likely not become the Gateway to Crypto if a proposed law is approved.

The “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019” levies a ten-year prison sentence on any individual who might “mine, generate, hold, sell, transfer, dispose of, issue or deal in cryptocurrencies.”

This is what is called a broad stroke. Not much left to the imagination. Not subtle.

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06/5/19

United States Securities and Exchange Commission v Kik (Kin)

Yesterday, the United States Securities and Exchange Commission sued Kik Interactive Inc, a Canadian company, for “…conducting an illegal $100 million securities offering of digital tokens.”

Here is the SEC Press Release.

The issuance of “tokens” has been a supercharged issue in the cryptocurrency world for some time as the issuers contend these tokens are not securities — therefore not subject to the requirements to issue a US SEC Form S-1, Registration and to provide quarterly, annual reports as well as reports of material events — while the SEC says maybe they are.

In any event, the issue has been out there for some time.

Many crypto advocates have suggested it will take a legal confrontation, like this one, for the issue to be resolved. Well, fellas, you got your wish.

The SEC is focused on the implications of what happens or doesn’t happen when a “security” is registered and issued.

Specifically, they contend, “By selling $100 million in securities without registering the offers or sales, we allege that Kik deprived investors of information to which they were legally entitled, and prevented investors from making informed investment decisions.”

Keep that “information” nugget in the front of your brain as you read deeper into this post.

The SEC’s view is that it is the securities issuing regulations and compliance therewith that provides the appropriate protections for investors. The requirements as noted above are:

 1. The issuance of a US SEC Form S-1, Registration Statement — filed with the SEC for comment and revision prior to issuance and thereby providing a platform upon which to make disclosures about the financial health of the issuer, discuss risks and other information a buyer would find of vital interest.

 2. The filing of quarterly reports, annual reports, and reports of “material” events and actions.

This would, in essence, create a public security. It is not end of the world. You cannot even see it from there.

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08/21/18

The Wizard of Omaha and Tech

Big Red Car here on a lovely, sunny Texas day, y’all. Hope it is going well for you and yours.

I always like to take a peek at what Warren Buffet owns as it relates to stocks. It is often an eye opener. It is often pretty damn plain vanilla and boring, but something caught my eye.

Buffett famously has eschewed investing in technology suggesting that there is a limited longevity and defensibility of the competitive advantage for tech based companies and that it is very difficult to identify the big winners at a time when their stock price is reasonable. This was his view back in 1999 when Forbes interviewed him for an excellent article. Take a second and consider that statement. This from a guy who has to deploy $200B in stocks.

Image result for images warren buffett

“My name is Warren Buffett. I’m 84 and I’ve been at this investing business for a long time. Don’t be blowing smoke up my ass about bitcoin and cryptocurrency. I was in business when the US was on the God damn gold standard.”

He and noted venture capitalist Marc Andreesson had a pithy exchange about the future of bitcoin. When Buffett called it a “mirage” Andreeson countered that Buffett “…was just an old white guy crapping on a technology he didn’t understand.” [I see no reason why Buffett’s ethnicity was germane to the discussion, do you?]

Buffet has long been quoted as saying, “All you people piling into dot-com stocks must be much smarter than I am, because I just don’t get it.”

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