When Kik’s board of directors decided to support the company’s pivot to crypto, one of the board members described it as a “hail Mary pass.”

It was early 2017 and the Canadian mobile messaging startup, having depleted its venture funding, was months away from firing everyone and calling it quits. The seven most promising leads for a potential acquisition had balked at buying the startup. Kik was in dire straits.

That’s all according to a complaint filed Tuesday by the U.S. Securities and Exchange Commission (SEC), alleging that Kik conducted an “illegal $100 million securities offering” with a September 2017 initial coin offering (ICO) for its kin token.

Details revealed Tuesday by the SEC show the company knew it faced pushback from regulators, but that didn’t stop Kik from moving forward. Other efforts to keep Kik afloat had failed. To prevent its equity holders from getting wiped out, Kik had to make the cryptocurrency path work, at least according to the version of events presented by the SEC.

In a statement released Tuesday evening, Kik CEO Ted Livingston said the SEC complaint “presents a highly selective and grossly misleading picture of the facts and circumstances surrounding our 2017 pre-sale and token distribution event. We look forward to presenting the full story in court.”

The fact that investors were never apprised of the company’s financial situation seems to be a major sticking important point for Stephan Schlegelmilch and David Mendel, the SEC enforcement staffers who authored the complaint.

Here are seven dramatic findings made by the regulators:

1. Kik was losing money

And they were shrinking. In a year ending in mid-2016, Kik brought in $2.2 million. In a year ending in mid-2017, it brought in $1.5 million. At the time Kik decided to pursue an ICO, its expenses were running at $3 million per month.

As the complaint puts it, “Despite Kik Messenger’s initial success … Kik’s costs have always far outpaced its revenues, and the company has never been profitable.” Further, the complaint alleges, its “executives had no realistic plan to increase revenues through its existing operations.”

2. No one wanted to buy Kik

The Waterloo-based company was founded in 2009, and the regulators argue that Kik’s real peers were other mobile-first messaging companies. The complaint mentions Snapchat and WhatsApp, which both managed to repay their investors handsomely (WhatsApp with an acquisition by Facebook and Snapchat with an IPO).

According to the complaint, Kik hired an investment bank in 2016 to look for a buyer. The bank met with 35 potential buyers and seven showed interest. “By February 1, 2017, however, all seven potential suitors had declined to buy or merge with Kik,” the complaint reveals.

3. Kik disclosed more information to private-sale buyers than it did to the general public

Buyers who joined Kik’s simple agreement for future tokens (SAFT) got a discount and went through an investor accreditation check. These investors got a private placement memorandum (PPM), with more information about the company. This PPM disclosed that the Kik messenger was losing users quickly.

The complaint gives more detail on that point, saying, “Daily average users dropped from more than 10 million in January 2016 to about 6 million in January 2017.” Neither private investors nor those in the general sale got any information about the company’s financial position.

4. Kik built special e-stickers for its investors

Kik built a system for kin investors to get special digital stickers in its messenger app. According to the SEC complaint, this was an attempt to make it look like there was an actual use for the kin tokens at distribution. One executive emailed other Kik employees in June 2017 saying that “COMPLIANCE” was the only purpose behind the bare-bones sticker product.

The stickers apparently had a honey badger theme. An image of one is included in the complaint. Strangely, investors were not told the system was in development until after the sale was over.

5. CEO Ted Livingston made multiple public statements that token buyers would profit

In a February 2017 email to some employees, Livingston described how they could create a token and then “Buy today, sell tomorrow, profit.”

At a June 2017 Bitcoin Meetup in San Francisco, Livingston said the token boom would be a time in which “people are going to make a lot of money.”

At an August 2017 conference in Canada, Livingston said that “everybody can not only build this amazing new ecosystem and platform but also make a ton of money.”

6. Canadian regulators told Kik that its cryptocurrency would indeed be a security

In fact, because of that advice, Kik didn’t sell the tokens to the general public in Canada. But it never asked American regulators the same question.

Kik reached out to the Ontario Securities Commission (OSC) right after the SEC’s DAO report. By early September, OSC staff had shared the opinion that Kik’s offering qualified as a security. Canadians were barred from the public sale. Americans, as a class, were not (though some states were blocked).

7. A lot of Americans put a lot of money into the public sale

Of the roughly $100 million raised, Americans put in $55 million. Some $16.8 million of that came in the public sale.

The SEC complaint gives more detail about how they were distributed, reporting that “United States-based investors included (a) two purchasers who paid about $1.6 million and about $970,000 respectively; (b) 20 purchasers who paid about or more than $100,000; (d) 223 who paid about or more than $10,000; and (d) 1,853 purchasers who paid about or more than $1,000.”

In the complaint, the SEC seeks a variety of forms of relief, including a demand to “disgorge all ill-gotten gains” with interest and pay a civil fine.

Kik CEO Ted Livingston in April 2018, photo by Brady Dale for CoinDesk

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