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The SEC’s Kik Crypto Case Shows Just How Far Crypto Has To Go—Data Sheet

June 6, 2019, 12:55 PM UTC

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We’re big on “wars” these days. There’s a trade war on with China, which some think is a new kind of cold war. The culture wars over perennially hot-button topics like abortion rights are heating up. And at the intersection of finance, technology, and securities law there’s a “war on crypto.”

“Crypto,” for the uninitiated, refers to cryptocurrencies. The prefix generally means “secretive,” referring to the fact that this new creation is connected neither to a government (like real currency) or physical assets (like something with intrinsic value). It’s also short for “encryption,” as the new virtual currencies depend on some of the same mathematical wizardry behind digital encoding techniques. Bitcoin, whose dollar-denominated value has seesawed over the years, is the most famous cryptocurrency. And there are many others.

The war in question is over the Securities and Exchange Commission’s contention that cryptocurrencies ought to be regulated like securities when they are offered in bulk sales through something called an initial coin offering. A failing-at-the-time Canadian messaging company called Kik raised $100 million this way in 2017 from U.S. investors. Tuesday, the SEC sued Kik, saying it should have registered its offering so that investors could be better informed on what they were getting themselves into. Kik disputes the charges.

But many proponents of cryptocurrencies have an attitude that’s analogous to supporters of a certain maverick politician: Not hewing to the old rules is good because, you know, the old rules suck. Regulators, which do boring things like protect investors from unscrupulous operators as well as themselves, are old-fashioned. (Jeff Roberts recently detailed the besieged mentality of the “crypto” community, which in its short existence has been shown to have more than its fair share of unscrupulous operators.)

There are serious people on both sides of this debate. Former prosecutor Katie Haun, for example, has gone from chasing down shady cryptocurrency characters to defending—and investing in—this burgeoning field. As Robert Hackett detailed in his September profile, Haun is with venture-capital firm Andreessen Horowitz now. She recently dissected the battle in a long blog post. (I’ll be interviewing her at the upcoming Brainstorm Finance conference in Montauk, N.Y.)

Cryptocurrencies may well have their place in the economy one day. But first they’ll have to prove that they are safe and in compliance with important regulations. As Steven Peikin, co-director of the SEC’s division of enforcement said in a statement announcing the Kik case: “Companies do not face a binary choice between innovation and compliance with the federal securities law.”

Adam Lashinsky


Zuck's bucks. The troubles of some cryptocurrencies, as Adam just discussed, isn't deterring others from launching. Facebook plans to offer its own digital payments vehicle later this month. The Facebook virtual coinage will be available in the company's apps and at ATM-like machines. Employees working on the project will even be able to take their salaries in the new digital moolah. A digital experiment at JPMorgan Chase, however, is ending. The bank will kill Finn, its online and mobile banking service aimed at younger customers, a year after launching it nationally.

Gee whiz, that Mr. Lincoln, there he is. Forget car rides and rented scooters, how about flying across the city in a helicopter? That's the plan Uber is testing in New York City. Flights from a downtown Manhattan heliport to JFK Airport will cost about $200, Uber says. Speaking of the friendly skies, Amazon is moving forward with drone delivery tests using a newly-designed craft that combines features of a helicopter and a plane. “The tech industry is abuzz about drones, but not all drones are created equal,” Jeff Wilke, head of Amazon's consumer business, said as the drone was unveiled at the company's re:MARS conference on Wednesday.

Speeding up. Now that you're all excited about flying around with your packages, don't be sleeping on scooters. Scooter service Bird is buying smaller rival Scoot, as the field continues to consolidate. Last year, Lyft bought Motivate and Uber bought JUMP. No purchase price info on Scoot yet, though the startup was valued at over $70 million in its last round of venture capital. As far as bikes that don't actually go anywhere, exercise service Peloton says it has filed confidentially to go public. The company, last valued privately at $4 billion, won't be disclosing financial details until later down the line.

Mystery box. Elsewhere on Wall Street, online clothing retailer Stitch Fix reported revenue jumped 29% to $409 million and earnings per share of 7 cents slipped 22%. Both were better than expected and Stitch Fix shares, already up 38% this year, jumped another 33% in premarket trading on Thursday.

New Jack City. The metro government of Baltimore offered an update on Wednesday as it continues to recover from the ransomeware attack that corrupted its computer networks last month. While facing costs of $10 million and another $8 million in lost revenue collections, less than one-third of city workers can log back on to their computers. The situation is "not ideal, but manageable," says finance director Henry Raymond.

New day dawning. A couple of longtime tech rivals shook hands and struck a deal: companies using Microsoft's Azure cloud platform will now be able to connect it to their Oracle cloud applications. "Our joint customers can migrate their entire set of existing applications to the cloud without having to re-architect anything," Oracle EVP Don Johnson said.


The devastating Russian attack on the 2016 election is about to be repeated in 2020. But the state of election and campaign security remains dismal, New York Times reporters Nicole Perlroth and Matthew Rosenberg explain in a lengthy explainer about why election defenses against cyberattacks have not improved. The issue comes to a head today as the Federal Election Commission rules whether campaigns can accept discounted cybersecurity services from Area 1 Security. In a staff draft opinion, the commission is likely to block the discounts as improper campaign contributions.

The commission has been sensitive to the influx of so-called dark money into campaigns and maintains a high bar for granting exemptions because of concerns that an exemption could create a loophole for corporations looking to influence an election.

Daniel A. Petalas, outside counsel for Area 1 and a lawyer at the firm Garvey Schubert Barer, said the draft opinion was based on a misunderstanding. In return for helping the candidates, Area 1 could gain valuable research, he said. “Area 1’s whole purpose, their whole basis for being, is attacking the phishing issue,” Mr. Petalas said. “There’s really nowhere it’s more dramatically presented than in the election context, given what happened in 2016.”

Election security experts said lawmakers must address rules that prohibit cybersecurity firms from providing assistance to campaigns. “The idea that this is even an issue is just insane,” [Stanford law professor Nathaniel] Persily said in an interview Tuesday.


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After a few serious news items about flying in the skies, we bring you the story of the mysterious "cloud" that appeared in Southern California on Wednesday. On weather radar in San Diego, it looked like a massive storm 80 miles long and 80 miles wide. It was in fact, a massive swarm of ladybugs. Onward and upward.

This edition of Data Sheet was curated by Aaron Pressman. Find past issues, and sign up for other Fortune newsletters.