Court nixes SEC’s attempt to compel Telegram to produce full bank records
The regulator had sought complete bank records concerning use of investor funds by Telegram and TON Issuer.
The United States Securities and Exchange Commission (SEC) has had its attempt to obtain complete bank records regarding the use of investor funds by Telegram and TON Issuer quashed by the New York Southern District Court.
On January 6, 2020, Judge P. Kevin Castel signed an order denying without prejudice SEC’s Letter Motion to Compel. The Court held a telephone conference with parties on January 6, 2020 to address the discovery dispute raised in the SEC’s letter.
In its Motion, the SEC noted that the defendants claim to have raised approximately $1.7 billion from investors through the sale of digital tokens called Grams between approximately January through March 2018 in what the SEC has charged to be an unregistered offering of securities. The SEC argued that the defendants – Telegram and TON Issuer refused to disclose the bank records concerning how they have spent the $1.7 billion they raised from investors in the past two years and to answer questions about the disposition of investor funds.
According to the SEC, the requested bank records are highly relevant to the issues in dispute in the case, including how much money Telegram has spent, and in what manner, in developing the TON Blockchain, the Telegram Messenger application to be integrated with the TON Blockchain, and related applications. Also, the evidence is seen as relevant to the efforts Telegram has made to ensure the viability and profitability of the Grams it sold.
Further, according to the SEC, Telegram’s bank records are relevant to whether Telegram paid commissions to purchasers who were buying Grams to resell to other investors, which could render them statutory underwriters.
The SEC requested that Telegram be compelled to provide complete bank records and answers questions about Telegram’s use of these funds.
On January 6, 2020, the Court denied, without prejudice, plaintiff’s application to compel the production of defendant’s bank records. There is an option, however, that the SEC will get access to at least some of the requested information. By January 9, 2020, Telegram will have to set forth in a declaration a proposed schedule for a review of the requested bank records to ensure that production of such records complies with foreign data privacy laws.
