SEC wants Telegram to be compelled to provide complete bank records over use of investor funds

Maria Nikolova

According to the regulator, Telegram and TON Issuer are now refusing to disclose the bank records concerning how they have spent the $1.7 billion they raised from investors in the past two years.

The action brought by the United States Securities and Exchange Commission (SEC) against Telegram Group Inc. and its wholly-owned subsidiary TON Issuer Inc. continues at the New York Southern District Court, with the regulator now asking the Court to compel the defendants to produce certain documents concerning the amounts, sources, and use of funds raised from investors in connection with the unregistered sale of securities at issue in this case.

The request is made in an emergency letter motion filed by the SEC on January 2, 2020.

The SEC notes 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 defendants are now refusing 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.

The regulator says that Telegram has already once avoided having to provide financial information to investors, including regarding the intended use of their funds, by failing to register its sale of Grams and thus not providing a statutory prospectus.

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.

According to the regulator, the defendants’ refusal to fully disclose and answer questions about their disposition of the $1.7 billion they raised from investors is deeply troubling. The SEC requests that Telegram be compelled to provide complete bank records and answers questions about Telegram’s use of these funds.

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