SEC and Telegram clash over disclosure of investor information

The proceedings launched by the United States Securities and Exchange Commission (SEC) against Telegram Group Inc. and TON Issuer Inc. over alleged $1.7 billion unregistered digital token offering continue at the New York Southern District Court. The latest developments in this case focus on information disclosures, with the US regulator opposing an attempt by the defendants to seal certain investor information.

On February 14, 2020, the SEC lodged a Letter with the Court, responding to motions filed by defendants Telegram Group Inc. and TON Issuer Inc. and nine third-party investors to seal or redact portions of exhibits or documents that the parties have submitted to the Court in connection with their pending motions. In short, whereas the defendants are pushing for sealing of a heavy amount of information related to investors, the SEC insists that a certain part of this information should not be kept under seal as it is important for the case.

The SEC consents to sealing information identifying certain investors but not others whose roles stretched beyond mere investment, opposes sealing most of the business information at issue, and consents to sealing the financial records on certain conditions.

The regulator notes that Telegram has proposed redacting investor identifying information for all investors, including those who played a further role in Telegram’s offering, for example, by marketing Grams to others. Telegram has also proposed redacting identifying information for certain non-investor third parties who were otherwise involved in the offering or in the development of the TON Blockchain.

The SEC objects to redacting the names of any investors or any non-investor third parties who have engaged in additional activities, such as marketing and selling Grams or Gram interests or developing applications for the TON ecosystem (including those whose efforts were or are coordinated with Telegram).

According to the SEC, the communications and other actions of those investors or third parties are highly relevant to issues relating to the pending motions, including showing whether Grams are securities and whether Telegram’s offering may qualify for an exemption from registration under the Securities Act of 1933.

The SEC has also submitted at the Court a list containing 24 names of the investor and non-investor third parties whose conduct in the offering involved more than merely investing and summarizes their roles. The roles range from “involved in marketing and selling Grams interest” to “application development”.

The SEC argues in favor of disclosure. The regulator notes that none of those investors or third parties have moved to seal or redact their names or articulated any privacy interests—it is Telegram that seeks to protect their unarticulated “privacy” interests despite the fact that many of these entities have made public statements connecting them to Grams and Telegram. The identities of the third parties in the list should therefore not be redacted, the SEC says.

Let’s recall that, in a recently filed motion for summary judgment, the SEC argued that it is entitled to summary judgment as a matter of law on its claim that Telegram made unregistered offers and sales of securities.