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

SEC apparently approved Ether ETF as VanEck’s listed by DTCC

Amid increasing speculation about the possible approval of a spot Ether (ETH) exchange-traded fund (ETF) in the United States, global investment manager VanEck’s ETF has been listed by the Depository Trust and Clearing Corporation (DTCC) under the ticker symbol “ETHV.”

blockdag

Unlocking Investment Potential: Introducing MoonBag Presale, the Cryptocurrency Set to Surpass ApeCoin and Bitbot

Discover MoonBag Presale, the cryptocurrency set to surpass ApeCoin and Bitbot. Unlock your investment potential now!

Fintech

Playtech sees promising growth despite dispute with Caliplay

Gambling technology group Playtech plc (LSE: PTEC) reported solid financial results for the four months to April 30 as B2B growth and Snaitech’s record performance pushed it towards large gains in revenue.

Chainwire

Multipool Launches LBP on Fjord Foundry Raising $200k in 24 Hours

Multipool, a leading innovator in the blockchain and cryptocurrency industry, launched their Fjord Foundry LBP on May 21st, raising $200k in the first 24 hours.

Chainwire

$BEER, a New Solana-Based Memecoin completes Pre-Sale of 30,000 SOL this week

The Liquid Gold, $BEER, has become the most discussed topic on Solana over the past two weeks. $BEER has skyrocketed into Twitter trends across Europe & Asia, captivating beer lovers worldwide.

Digital Assets

Hong Kong regulator orders Worldcoin to cease operations over privacy concerns

Hong Kong’s privacy regulator has ordered Worldcoin Foundation to cease all operations of its cryptocurrency project in the city, citing risks to privacy and personal data.

Inside View

MT4 vs MT5: Which Should You Choose for Crypto Trading?

MetaTrader 4 (MT4) and MetaTrader 5 (MT5) are two sophisticated trading platforms developed by MetaQuotes Software. Although MT4 is the more widely adopted choice, traders must determine which platform is better suited for them and understand the reasons behind this choice. Here’s everything you need to know.

Digital Assets

Intentable.io Launches Intent-Centric Architecture and Marketplace

Discover how Intentable.io, formerly Kiroboflow, is revolutionizing blockchain interactions with its Intent-Centric Architecture and new marketplace for intent-based strategies.

Digital Assets

Crypto ETFs, retail trading spike as Bitcoin nears record highs

BlackRock’s spot bitcoin exchange-traded fund (ETF), which trades under the ticker IBIT on Nasdaq, saw a record amount of cash injection after a quiet few weeks of net outflows. The healthy metrics came as bitcoin briefly traded above the $71,000 level for the first time in a month.

<