SEC Files Emergency Action Against Telegram's $1.7b Token Sale

Ricardo Esteves

Ricardo Esteves has seen business and economics through many lenses. He joined the Financial Services Industry in 2009, and has been a financial journalist since 2011. He holds a degree in Business Administration and has experience producing real-time news, from both buy-side and sell-side, as well as for retail traders, brokers and service providers. Esteves' work has appeared in a variety of online publications including FX Street and FinanceFeeds.

SEC arbitration

SEC Files Emergency Action Against Telegram’s $1.7b Token Sale

October 15, 2019

TelegramTelegram Group and its wholly-owned subsidiary TON Issuer Inc. are being accused by the Securities and Exchange Commission (SEC) of conducting an unregistered, ongoing digital token offering in the U.S. and overseas that has raised more than $1.7 billion of investor funds.

The SEC has filed an emergency action and obtained a temporary restraining order against the two offshore entities in response to the capital raise of January 2018 set up 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.

The companies sold about 2.9 billion digital tokens at discounted prices to 171 initial purchasers worldwide, including more than 1 billion Grams to 39 U.S. purchasers, to be delivered upon the launch of its blockchain by no later than October 31, 2019. The SEC alleges that defendants failed to register their offers and sales of Grams.

Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, commented: “Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold. We allege that the defendants have failed to provide
investors with information regarding Grams and Telegram’s business operations, financial condition, risk factors, and management that the securities laws require.”

Steven Peikin, Co-Director of the SEC’s Division of Enforcement, said; “We have repeatedly stated that issuers cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token. Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.”

It was only last week that Telegram went public with its involvement in the Telegram Open Network (TON) and its native gram tokens. The firm says it has no control over the TON Blockchain network “and therefore cannot ensure that any transaction details that you submit
via the Services will be validated and confirmed on the TON Blockchain.”

The firm will not keep either personal information of its users nor their public and private keys as well as no control over processing and verifying the transactions on TON.

“You are solely responsible for managing and maintaining the security of your Credentials. If you lose your Credentials, we do not have the ability to recover your Credentials or assist you in retrieving your Credentials, and you may not be able to access your Grams. The transactions you submit via the Services may not be completed or may be substantially delayed by the TON Blockchain. We have no control over the TON Blockchain and do not have the ability to facilitate any cancellation or modification requests to transactions you have submitted. A fee may be imposed on your transaction by the TON Blockchain. We have no control over the amount or type of such fees.”

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