When messaging giant Kik Interactive launched an initial coin offering in 2017 and raised a jaw-dropping $100 million, investors had high hopes of a lucrative return. Those hopes may now have been dashed by the United States Securities and Exchange Commission (SEC).
The SEC recently announced that it was opening up an investigation into the ICO. The agency contends that the company’s founders knowingly engaged in an “unregistered securities sale”. The move has highlighted the gap between crypto investor expectations, founder promises, and concrete regulations.
Part of the reason the team is now in trouble is the way the ICO PR team decided to market the token sale. America’s security regulator is apparently building its case based on what the founders have said in public forums and what users have published across YouTube, Slack messages, Twitter and even a roadshow that Kik conducted in the early stages of its token sale.
As the case kicks off, here are some vital ICO PR lessons for entrepreneurs entering the space for the first time:
1. Refine your message
A carefully crafted and meticulously planned message can be inspected by lawyers and legal counselors before it gets repeated in front of an audience. Taking the time to perfect the message is a vital part of any marketing and PR strategy, but when the regulatory hurdles as higher (as is the case for ICOs and STOs) the time spent on refining the message becomes more critical.
2. Iron out the regulatory hurdles
Considering the jurisdictions and the legal precedents set in the country where your ICO is based is always a good idea. Different regions have adapted differently to the rise of cryptocurrencies and the proliferation of blockchain technologies. Some countries are more restrictive than others.
Find out if your ICO can be marketed to certain types of investors (US citizens or businesses in Iran, for example) or must be restricted to other types (accredited) before you go out and start marketing your upcoming token offering to everyone. Place disclaimers and blocks on your website if you need to clear certain regulatory hurdles such as GDPR or FATCA. It’s always better to be cautious when you’re dealing with a controversial financial instrument in a multibillion dollar industry such as crypto.
3. Don’t overpromise and under deliver
Deception is the underlying basis for fraud, and there’s a fine line that separates hyperbole from deception. For example, saying you hope the ICO will make early investors wealthy may be fine by most regulatory standards, but saying the tokens will offer a 4000% return within 4 weeks and turn every investor into a bonafide millionaire overnight is probably illegal in most parts of the world.
Of course, overpromising has become routine in the hypercompetitive world of ICOs and airdrops. It’s not easy to avoid the temptation or control what your co-founders and staff say in public. But investing the time and making the effort to set restrictions on public speech across the organization is worth it in the long-run.
Again, speak to your legal counsel and PR agency to refine your message before launch. A few prudent steps can keep you and your team on the right side of the law.