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

Retail FX

Stephen Kalayjian launches educational and community platform TradeEZ

TradeEZ has partnered with online broker TradeZero to provide chart overlays that can be accessed on the TradeZero platform. In the future, the firm will be looking to partner with some of the largest firms around the world.

Retail FX

LiteFinance launches new mobile app on Google Play

The mobile app allows users to trade and copy professional traders’ positions and gain access to trading chat rooms.

Technology

ECXX taps OneTick for data management and analytics

OneTick is asset class-agnostic and currently has customers across FX, equities, futures, CFDs, FI, and options.

Industry News

$1.5 million: SEC fines BNY Mellon Investment Advisor for misstatements and omissions about ESG

Investors are increasingly focused on ESG considerations when making investment decisions.

Digital Assets

Mercuryo reaches 3 million users amid crypto payments’ US and Asia expansion

“The opportunities for linking crypto and fiat currencies are abundant. From crypto projects that require fiat solutions (like fiat on and off ramps and IBANs), through to crypto for traditional fiat systems, and solutions for fintech companies that enable clients to buy or sell crypto within their own infrastructure.”

Retail FX

Maltese watchdog warns of bogus broker Perfect Choice Trade

The Malta Financial Services Authority (MFSA), the regulator responsible for the oversight of the forex  sector in the Mediterranean island, today issued a warning against a forex broker that offers its services without having the authorization to do so.

Digital Assets

Dukascopy warns of fake website impersonating its cryptocurrency

Switzerland’s forex bank and broker, Dukascopy, today warned against a fraudulent website that have been falsely claiming affiliation with its ‎authorized brand.‎

Uncategorized

Freetrade raises £30 million to fund business expansion

Freetrade, which calls itself a challenger stockbroker, has raised £30 million in debt financing led by a clutch of existing investors.

Digital Assets

Crypto assets under management at lowest point since July 2021

Crypto investment products registered outflows for a second consecutive week, the bulk of which came from bitcoin funds, according to data from digital asset manager CoinShares.

<