Late on Friday, the US Securities and Exchange Commission (SEC) announced that it is suing two offshore companies, Telegram and its wholly owned subsidiary TON Issuer, for holding an unregistered token sale.
Submitted Complaint On the same day, Telegram sold about 2.9 billion crypto-tokens called Grams (GRM) to 171 buyers in Manhattan's Federal District Court for a total of $ 1.7 billion. About a quarter of that total, $ 424.5 million, was said to belong to 31 US-based buyers.
As a result, the SEC has received an injunction against Telegram and TON seeking both "some emergency" and "permanent" injunctions, prejudicial bias and civil sanctions. Now, the official telegram channel for TON investors proposes to postpone the launch scheduled for October 31
Brief Introduction to TON
GRM is a native currency of Telegram Open Network (TON), a blockchain platform designed to enable payments and hosting Distributed Applications (DApps) beyond the scope of visa scalability. The project is being developed by Telegram, an encrypted open-source messenger led by two Russian entrepreneurial brothers, Pavel and Nikolai Durov, who have fled their homeland. TON is said to be integrated into the app, which has over 200 million users worldwide and is widely used in the blockchain and cryptocurrency community.
Following third-party research, TON has the potential to act as a gateway to crypto assets and related apps to bankrupt Unbanked and become the first discovery platform for Web 3.0 applications – much like the App Store "for Web 2.0. "
TON was one of the industry's most successful ICOs. In 2018, Telegram raised nearly $ 1.7 billion in two private token sales rounds in February and March. According to documents filed with the SEC by Pavel Durov, only those who invested at least $ 1 million were allowed to participate in the TON sale. The offer was restricted to accredited investors in order to minimize the control of US regulators.
In early October, Telegram released all its TON source code on Github, announcing the launch of its much anticipated blockchain project for the end of the month. In addition, the company announced that all key-generation software was provided to all investors and they should receive their GRM tokens by October 16.
ICO Issues: Unsolicited GRM Sale in July, SEC Investigation
The first problems with the TON sale occurred in July, when Gram Asia reportedly was the largest owner of telegram gram tokens in the region – with the sale of rights to its GRM began participations in the Japanese Crypto Exchange Liquid cost $ 4.00 per token, tripling the original selling price of $ 1.33.
Obviously, the sale not approved by TON contradicted the token purchase agreement. As the TON investor then shared with Cointelegraph, all buyers had expressly agreed not to release their proprietary rights prior to launch and were not allowed to:
or partially, ANY OF THE ECONOMIC CONSEQUENCES OF THE OWNERSHIP OF THE INVESTING AGREEMENT contained in this purchase agreement or in any token is. "
Now, just a few weeks before the release of the TON, the SEC has issued an interim injunction breaking the token offer. The Regulatory Authority's complaint alleges that Telegram and its TON subsidiary have not registered the sale of the GRM token, which the SEC believes to be a security, considers the sale of GRM tokens as "unlawful". In particular, Telegram had notified the SEC, according to public documents issued in 2018, that the two $ 850 million bids were allegedly made in accordance with Rule 506 (c) and / or S of the Securities Act 1933. This means In essence, GRM tokens were sold to accredited investors only and the offer did not need to be registered or qualified by the SEC.
Now, the SEC does not seem to be convinced. "Telegram is committed to delivering first grams to first-time buyers in the launch of the TON blockchain by 31 October 2019 at the latest and plans to sell millions more grams at the same time," the complaint said. "Since October 11, 2019, Telegram has not filed a registration statement with the SEC for this proposed offering of securities." Steven Peikin, co-director of the SEC's Enforcement Division, asserted: "Telegram endeavors to preserve the benefits of a public offering without complying with the long-standing disclosure requirements to protect the investing public Federal securities laws can not circumvent by labeling their product with a cryptocurrency or a digital token. "
The agency stressed that its buyers and telegrams will be unlocked no later than October 31st after the release of the GRM tokens of grams in the US markets. " Stephanie Avakian, the other co-director of SEC Enforcement, said, "Today's emergency measure is designed to prevent telegrams." from the flooding of US markets with digital tokens, which we claim have been illegally sold. "
Telegram and TON did not respond to Cointelegraph's request for an opinion on the complaint investors and investors in the Telegram Open Network (TON) as well as future grandfathers of Grams" wrote:
"Due to increased regulatory uncertainty We take a break to analyze new information and adjust our policies.
The TON Board will be back with you as soon as we have more clarity about the legal status of TON and grams and the permissible type of analysis that can be published on them.
We look forward to providing you with further information as soon as possible.
TON Board has also erased all previous news from its channel.
Experts: US regulators are picking up crypto actors with renewed vigor
Andrew Rossow, a professor of internet lawyer and cybersecurity law, believes that SEC will no longer accept token bids by slowing the TON sale, the securities bypass regulations, he told Cointelegraph:
"The SEC is not playing around. It is time for these companies to recognize this. It has been clear for some years that most of the tokens offered by these companies are securities and must comply with federal regulations.
According to Rossow, the SEC's current enforcement action against Telegram is the highest-level measure that could jeopardize the company's ability to continue to sell its tokens abroad in other countries. "This means that this is far from over and will have some legal consequences for telegram and consequences for its abbreviation," the legal expert told Cointelegraph. The SEC has called for token bids and forced the US courts to take a clearer stance in the world of digital money and security.
The SEC's intervention is taking place against the background of increasing scrutiny by US regulators, notes Selva Ozelli, International Tax Attorney and CPA.
Ozelli said the US Commodity Futures Trading Commission, the Financial Crimes Enforcement Network and the SEC released a joint statement on the same day to remind people – both offshore and US – which deal with the fight against money laundering and the fight against the financing of digital assets terrorism obligations under the banking secrecy law. "Such people must also comply with US tax laws, as the US regulators are responsible for such companies," Ozelli told Cointelegraph.
Robert W. Wood, a Wood LLP lawyer from San Francisco, agreed to re-engage US financial dogs to regulate coin issuance for local markets. "On the tax side, there are also increasing signs that the IRS is building up and putting more pressure on it," he told Cointelegraph.
The court ordered the defendants (TON Issuer and Telegram) to send "all opposing papers" by 18 October at the latest. In addition, their representatives were asked to go to court on 24 October. The judge has warned Telegram of ongoing or future violations "including, but not limited to, sending griefs to a person or entity or other means of conducting an unregistered offer or sale of grams."