Telegram Is Duking It Out with the SEC
The company is in hot water after the government organization claimed Telegram had failed to properly register a token offering a few years ago that resulted in more than $1 billion in revenue for the messaging service. The enterprise made quite a bit of money after promising delivery of its new “gram” tokens to several individual investors, though at press time, all those deliveries have been suspended until the legal barricades surrounding Telegram can be struck down.
Recently, lawyers for the organization reached out to the SEC asking for clarification as to why the distribution process is being upheld. The SEC says it will not provide this clarification, stating that Telegram is “undeserving.” The messaging platform has since put out a statement claiming that a complete distribution ban is unwarranted. The statement reads:
In fact, courts have modified injunctions after a request for clarification in similar circumstances. The modification of the injunction will preserve the status quo by clarifying for the parties precisely what [defendant] is and is not, enjoined from… [and] is therefore within the scope of this court’s authority.
Sadly, the federal judge presiding over the case is not siding with Telegram, and has allowed the SEC to enforce the denial, though he hasn’t explained why. Judge Kevin Castel of Manhattan, New York has ruled the company will not be permitted to launch any tokens or products on its new TON blockchain, nor will it be allowed to distribute or sell any further tokens to customers outside the United States.
Telegram is adamant that it should not be susceptible to the SEC’s judgement, claiming it followed all guideline and raised money during its initial ICO (initial coin offering) from “sophisticated investors.” It therefore claims it was not required to register its offering with the SEC, and that the tokens were purchased through decentralized means.
The company explained in a court filing:
Telegram has always treated the purchase agreements as investment contracts (and thus securities), but that does not mean the underlying Grams themselves, which do not exist yet and will be used, bought and sold by the public following the launch of the TON blockchain, are also ‘securities.’
You Didn’t Do Things Correctly
Castel, on the other hand, suggests that the gram tokens met what’s known as Howie’s definition of securities, claiming:
The security in this case is not simply the gram, which is little more than alphanumeric, cryptographic sequence. This case presents a ‘scheme’ to be evaluated under Howey that consists of the full set of contracts, expectations and understandings centered on the sale and distribution of the gram.