NY Court asks for UK assistance in SEC’s action against Telegram

Judge P. Kevin Castel of the New York Southern District Court has signed a request for international judicial assistance in the enforcement action brought by the Securities and Exchange Commission (SEC) against Telegram Group Inc. and its wholly-owned subsidiary TON Issuer Inc.

The request is sent to the Senior Master of the High Court (Queen’s Bench Division) of England and Wales. The New York Southern District Court requests assistance in obtaining evidence to be used in the lawsuit.

The purpose of the Letter of Request is to obtain testimony for use at trial from a non-party witness, John Hyman, the former “Chief Investment Adviser” for Telegram Group Inc. during the relevant period at issue in this lawsuit. The District Court considers that the evidence sought is directly relevant to the issues in dispute and that the witness has been identified by the SEC as likely to have information and documents that may be used to support its claims against the defendants.

It has been demonstrated to the New York Southern District Court that justice cannot be done amongst the parties to the SEC’s action without the testimony of Hyman.

The New York Southern District Court requests the assistance of an appropriate English judicial officer to compel the appearance of Hyman to give oral sworn testimony and to produce documents on a set of subject matters.

The SEC has approached Hyman, through his counsel in the United Kingdom, in order to ascertain whether he would be willing to testify voluntarily in the United States of America. Although counsel for Hyman at first indicated that Hyman would voluntarily sit for a deposition in this matter, he has since not responded to additional entreaties voluntarily to appear for a deposition.

The SEC alleges that, from January to March 2018, Telegram raised more than $1.7 billion from 171 investors, including $424.5 million from 39 United States investors, through an unregistered offer and sale of digital assets known as “Grams” Initial Purchasers entered into agreements pursuant to which Telegram promised to deliver 2.9 billion Grams (out of five billion minted). The SEC further alleges that those offers and sales, which were not registered with the SEC, were the first step in achieving Telegram’s stated goal—the mass distribution of Grams to the investing public worldwide.

The SEC further alleges that Grams are “investment contracts” and, therefore, “securities” under United States federal securities laws. The SEC alleges that Telegram’s marketing materials reasonably led purchasers of Grams to view them as an investment into a common enterprise from which they could hope to profit based on Telegram’s efforts to develop a business and, therefore, as “investment contracts.”

The SEC further alleges that Telegram did not register the Offering of Grams with the Commission, and that no exemption from the registration requirements of the Securities Act applies to Grams. The SEC also alleges that Telegram did not prepare, file, or distribute any registration statement or disclosure document required under the federal securities laws.

The US regulator seeks a judgment permanently enjoining Telegram from future violations of Sections 5(a) and 5(c) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77e(a), 77e(c)], an order that Telegram disgorge ill-gotten gains received from the violative conduct and prejudgment interest thereon, as well as civil monetary penalties.

The defendants substantially deny the SEC’s allegations and/or deny knowledge or information sufficient as to form a belief as to the truth or falsity of those allegations, or state that the Complaint contains conclusions of law to which no response is required.

The SEC seeks the testimony of, and to obtain documents from, John Hyman. During his time as Telegram’s Chief Investment Adviser, Mr Hyman is alleged to have communicated with potential and actual investors in Grams about that investment. According to the SEC, Hyman is currently employed by “Gram Vault,” an entity that appears to be “a provider of safekeeping, trading and staking services to investors in the Telegram blockchain.” The evidence sought from this witness thus pertains to this Court’s determination of whether the defendants violated United States securities laws.

Among other things, the questions will concern:

• Mr. Hyman’s role at Telegram;
• Instructions given to Mr. Hyman in relation to the Offering of Grams;
• Telegram’s inducements to potential investors during the Offering of Grams;
• Mr. Hyman’s communications and statements with potential and actual Initial Purchasers of Grams;
• Mr. Hyman’s understanding of secondary market trading in Grams;
• Mr. Hyman’s discussions with other individuals at Telegram regarding the secondary market trading in Grams;
• Telegram’s efforts to ensure that Initial Purchasers invested Grams for their own accounts, and not for resale;
• Compensation paid by Telegram to third parties with respect to the Offering and/or Grams.