SEC pushes again for Telegram data regarding investor funds

Several days after the New York Southern District Court denied a motion by the Securities and Exchange Commission (SEC) to compel the production of full bank records by Telegram and TON Issuer, the regulator has renewed its attempts to obtain the data.

As per documents filed with the Court on January 10, 2020, and seen by FinanceFeeds, the SEC is renewing its motion to compel the defendants to produce certain bank records. On January 6, 2020, the Court denied without prejudice the SEC’s first such motion but ordered Telegram and TON Issuer to file a declaration setting forth a proposed schedule for a review of the requested records to ensure that production of such records complies with foreign data privacy laws, The defendants have since filed an affidavit, which the SEC says is vague as it makes it impossible for the SEC or the Court to weigh the true nature of the supposed burden of complying with foreign data privacy laws.

Telegram first asserts, generally, “that there are foreign persons identified in the [requested banking records]” and that producing them in this action “may implicate applicable foreign data privacy laws.” The defendants then complain that the analysis would include “determining the jurisdiction of each of the approximately 770 entities or individuals identified in the Records, and the nature of the relationship with each, to assess the extent to which foreign data privacy laws may be implicated.”. The defendants next state that fourteen jurisdictions are implicated for the 76 out of 770 entities or individuals whose jurisdiction they have already identified, that they have “already . . . performed” the data privacy analysis with respect to twelve of those jurisdictions, and that they have not done that work for the other two. The defendants further conclude that they “may need to engage local counsel to conduct legal analysis of related data privacy issues” with respect to these jurisdictions.

According to the SEC, Telegram has not provided sufficient information for the Court to determine whether a review for compliance with foreign data privacy laws is necessary. The regulator says that Telegram has failed to provide information regarding the current location of the records, the original location of the records, and the original, intervening, and current custodian(s) of those records, all of which is necessary to the conflict-of-law analysis. The SEC stresses that Telegram does not even mention the names of the foreign countries whose laws might apply, nor does it cite any specific data privacy laws.

“Telegram’s vague submission reveals Telegram’s broad, amorphous invocation of “data privacy” for what it is – a smokescreen aimed at improperly withholding relevant, responsive documents from the SEC”, the regulator says.

In its original 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.