NY Court quashes Kik Interactive’s attempt to depose top SEC officials over virtual currency laws

Maria Nikolova

Judge Alvin K. Hellerstein denied Kik Interactive’s motion to depose several senior SEC officials over the application of securities laws in the virtual currency area.

Kik Interactive, which has been targeted in a securities fraud action, has failed to secure the Court’s permission to depose top officials of the Securities and Exchange Commission (SEC) regarding the application of securities laws in the virtual currency area.

Earlier this month, the parties in this case informed the New York Southern District Court about a discovery dispute they have. The dispute concerns Kik Interactive Inc.’s request for a Rule 30(b)(6) deposition notice of the SEC and its service of subpoenas upon William Hinman (Director of the SEC’s Division of Corporation Finance), Valarie Szczepanik (Associate Director of the SEC’s Division of Corporation Finance), and Jonathan Ingram (Deputy Chief Counsel of the SEC’s Division of Corporation Finance).

According to Kik, it has asserted as an affirmative defense in this case that the ambiguity in the SEC’s guidance concerning virtual currencies resulted in arbitrary enforcement and deprived Kik of its constitutional right to fair notice of what the law required.

Kik said it seeks to depose a 30(b)(6) representative of the SEC’s choosing to “shed light on the SEC’s inconsistent (and apparently arbitrary) application of securities laws in this area and its affirmative decision not to provide clear guidance”. Kik also sought to depose “three of the individuals who were most involved in, and thus aware of, the development and execution of this approach”.

But Kik’s arguments were not convincing for Judge Alvin K. Hellerstein. On October 29, 2019, he denied Kik’s Motion for Discovery, the affirmative defense raises an issue of law, not of fact.

The SEC’s motion for a protective order, striking defendant’s notice to take depositions of SEC officials, was granted. Defendant’s request for document production relating to the affirmative defense was denied.

In June this year, the SEC took Kik Interactive Inc. to Court for conducting an illegal $100 million securities offering of digital tokens. The SEC charges that Kik sold the tokens to U.S. investors without registering their offer and sale as required by the U.S. securities laws.

The SEC’s complaint charges Kik Interactive Inc. with violating the registration requirements of Section 5 of the Securities Act of 1933. The Commission seeks a permanent injunction, disgorgement plus interest, and a penalty.

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