SEC vs. Kik update: Battle of the legal securities giants

It’s now been seven weeks since the SEC filed its official complaint against Kik Interactive for issuing an unregistered securities offering. Though the two parties have been at odds for months now, this was the beginning of the official legal battle between government vs. crypto.

If you’ve been following this publication, you know what a big deal this is. 

Not only will this be a landmark case for the classification of ICOs as securities offerings, but this is also the first time that a major project is going to head to head with the SEC and actually has a shot of winning. 

As you can imagine, this battle is not going to be cheap. Kik has already allocated $2 million to its defense fund and is soliciting further support from the crypto community. According to its site, DefendCrypto.org, the cause has already raised nearly $1.7 million in crypto so far.

In the upcoming months, I plan to give Insiders a real blow-by-blow of the case, so that you can follow along with informed background as it unfolds.

This case is just getting underway, so there has not been much movement yet. But in the past week, Kik made motions for their lawyers to appear Pro Hac Vice. Basically, this allows Kik’s out-of-state lawyers to appear in New York and represent Kik.

There will undoubtedly be many players involved. So let me give you a quick overview of the two main legal representatives for each side.

While this won’t give us enough information to draw any major conclusions about the case just yet, it will help to lay the foundation of the story as things unfold.

SEC’s Legal Counsel

Representing the SEC, we have Stephan J. Schlegelmilch leading the prosecution. Schlegelmilch has been with SEC for seven years and before that was a partner at Baker & Hostetler LLP, which is ranked as the #65 best law firm in the country. Prior to that, he clerked in the United States District Court in Northwestern Ohio. At a glance, Schlegelmilch’s experience is impressive, with a solid educational background, but not overwhelming.

While there is not much public information about him, we do know that he is simultaneously overseeing a fraud case against the CEO of the crypto company, Longfin. This shows that the crypto industry is clearly in his crosshairs.

Supporting Schlegelmilch in this case, we have David S. Mendel, who has been with the SEC for nearly 12 years. Previously, he spent six years at the prestigious firm WilmerHale. Which is generally considered the #22 best law firm in the country. Mendel’s educational background is impressive with an undergraduate degree from Brown and a JD from Michigan.

Doing a quick dig into his background, I found a case where the SEC was trying to pressure the Chinese branch of Deloitte to hand over documents related to a fraud investigation. 

Reportedly, Mendel was embarrassingly unprepared to answer the judge’s questions. 

“I am going to suggest you review the rules so you can answer my questions more specifically,” Judge Robinson told Mendel.

An SEC colleague in the courtroom then ran out with a cell phone and a notepad, before returning to consult with Mendel. After about ten minutes had passed, Robinson called a brief time-out. Later on, however, Mendel had to pause yet again to answer additional follow-up questions.

Ouch.

My take thus far on the SEC’s lawyers: Both have spent significant time in the agency, are impressive securities litigators, but neither are superstars. 

Now, how about the defense?

Kik’s Legal Counsel

First up, as the lead counsel representing Kik Interactive, we have Patrick Gibbs of Cooley LLP, one of the top law firms in the country. He backs this up with 20 years of experience at Latham & Watkins, which is ranked #5 in the nation and is where I cut my teeth in the legal world.

The SEC vs. Kik case is not the first time that Gibbs has gone head to head with SEC. Roughly five years ago, Gibbs won a major case against the SEC on one of the largest insider trading cases to go to trial. 

Assisting him on the case, we have Luke T. Cadigan, also of Cooley. Cadigan was poached by Cooley from K&L Gates, LLP three years ago for his high-profile clients in the technology space and his extensive experience in securities litigation. A combination that the firm rightly expected to become increasingly important in the years to come. 

The main appeal of having Cadigan on the case, however, is the fact that before going into private practice, he spent nearly nine years with the SEC. His last position with the agency was as the Assistant Director of the SEC’s enforcement division in the Boston regional office. 

As you can imagine, he’s undoubtedly someone who knows how the system works.

Overall, Cooley is an excellent law firm, ranked as 28th in the nation. That said, although Cooley is a top firm, they’re best known for representing technology companies and venture capitalists in the Bay Area. They’re not necessarily known for their SEC litigation prowess. 

Nonetheless, Cooley is easily a level or two above anything the SEC has faced so far with respect to cryptocurrency matters. 

What does this mean for Crypto Law Insiders?

There you have a synopsis of the key players in the biggest crypto legal battle of the year. While the credentials of the legal counsel are not necessarily the determining factor in a case, they undoubtedly play an important role.

Beyond that, they show Kik’s stance. Kik is not waving the white flag.

The project is hiring great lawyers with strong experience. Lawyers who will be able to defend the project much better than any other project has been able to defend itself against the SEC to date. 

As both sides gear up for action, I’m excited to see how things unfold. Subscribe below to make sure you don’t miss any of the latest updates in the SEC vs. Kik case.