Telegram argues “Grams” are not securities, as it seeks to rebuff SEC’s injunction application

Maria Nikolova

According to Telegram, the SEC’s action hinges on a fundamentally flawed theory that Grams constitute a “security” subject to the US securities laws.

Shortly after the United States Securities and Exchange Commission (SEC) launched an action against Telegram Group Inc. and its wholly-owned subsidiary TON Issuer Inc., the defendants are seeking to rebut the accusations against them.

On October 16, 2019, the defendants submitted their response to the SEC’s emergency application for preliminary injunction.

In the document, seen by FinanceFeeds, the defendants say the SEC has insisted that Telegram consent to the entry of a preliminary injunction and also has insisted that Telegram, prior to October 24, (i) search for, collect and produce documents in response to 18 document requests and (ii) produce witnesses for two full Rule 30(b)(6) depositions this week.

According to Telegram, the SEC’s action hinges on a fundamentally flawed theory that Grams constitute a “security” subject to the US securities laws.

The defendants argue that, unlike other digital assets that were offered to the general public through so-called Initial Coin Offerings (ICOs), Telegram did not offer any securities to the public through an ICO. Rather, Telegram entered into private purchase agreements with a limited number of highly sophisticated purchasers that provided for the future payment of a currency (Grams) but only following the completion and launch of the TON Blockchain. Telegram says it has already treated the Private Placement as a securities offering pursuant to valid exemptions to registration under the Securities Act of 1933.

According to the defendants, the Grams themselves, as distinct from the purchase contracts, will merely be a currency or commodity (like gold, silver or sugar) — not a “security” — once the TON Blockchain launches.

Telegram requests that the Court deny the SEC’s request for a preliminary injunction and enter an order that maintains the status quo regarding the offer, sale or distribution of Grams; relieves Telegram of any obligation to produce documents or witnesses in response to the SEC’s emergency requests prior to October 24; and directs the parties to submit an expedited case schedule to resolve the legal issues underpinning the SEC’s claims.

According to the SEC’s complaint, Telegram Group and TON Issuer Inc. started raising capital in January 2018 to finance the companies’ business, including the development of their own blockchain, the “Telegram Open Network” or “TON Blockchain,” as well as the mobile messaging application Telegram Messenger. The companies sold approximately 2.9 billion digital tokens called “Grams” at discounted prices to 171 initial purchasers worldwide, including more than 1 billion Grams to 39 US purchasers.

Telegram promised to deliver the Grams to the initial purchasers upon the launch of its blockchain by no later than October 31, 2019, at which time the purchasers and Telegram will be able to sell billions of Grams into US markets.

The SEC’s complaint alleges that the companies failed to register their offers and sales of Grams, which are securities, thus violating of the registration provisions of the Securities Act of 1933.

Read this next

Digital Assets

Silvergate dismisses speculation of trouble, says BlockFi exposure is minimal

Crypto-friendly bank Silvergate Capital claimed on a Tuesday blog post that it had minimal exposure to crypto lender BlockFi, which filed for chapter 11 bankruptcy protection this week.

Retail FX

Fidelity launches crypto trading for retail investors

Fidelity Investments, one of the largest brokerages in the world, has officially rolled out a commission-free crypto trading product for retail investors, starting with zero-fee trading for Bitcoin and Ethereum.

Digital Assets

ECB head calls for tougher crypto regulation after FTX collapse

President of the European Central Bank, Christine Lagarde, has called on lawmakers to start working on fresh crypto regulations to protect the financial system after the collapse of the FTX exchange.

Retail FX

CySEC updates rules for regulated brokers’ cross border activity

As CySEC’s attitude of adopting more stringent licensing guidelines and operating regulations becomes ever clearer, certain aspects of the rules and operations start to come into sharper focus.

Market News

Outlook for Gold: Can the Precious Metal Regain Power?

Gold set an all-time high at $2070 on March 08, 2022, when the price skyrocketed amid investors’ worries about the military conflict in Eastern Europe.

Crypto Insider

2022 Islamic Finance recap: as the space continues to evolve, blockchain stands to play a big part

Despite the global economy being ravaged by turmoil induced by the Covid-19 pandemic over the last couple of years, the Islamic finance industry has emerged relatively unscathed

Crypto Insider

Decentralized Exchanges and Pooled Trading Platform Applications

Decentralized exchanges are one-way blockchain companies take back the power of value creation.

Crypto Insider

How to maximize the safety of your digital tokens?

Digitalization is the future of the investment world. These are the most preferred and growing investments in the world.

Institutional FX, Interviews

FIA EXPO 2022: Interview with Trading Technologies

The derivatives trading industry has gathered in Chicago to attend the FIA EXPO 2022 on 14-15 November. 

<