Global messaging giant Telegram has been preparing to launch its much-awaited Telegram Open Network (TON) network. Their project has been a success so far with the company pulling off a massive $1.7 billion token sale.
However, earlier this month, the U.S Securities and Exchange Commission (SEC) has placed an emergency restraining order against the Telegram Group and its subsidiary TON, thus halting their Token issuance.
The SEC announced Friday that it has filed for a restraining order to stop Telegram from selling or distributing the Gram tokens within the United States. The Company had previously sold 2.9 billion gram tokens “at discounted prices to 171 initial purchasers worldwide,” the SEC press release said. This includes 1 billion tokens that were sold to U.S based investors. The complaint alleges Telegram did not register with the SEC for the sale.
Stephanie Avakian, SEC Division of Enforcement co-director said that the emergency action is “intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold.”
Steven Peikin, co-director further added:
“We have repeatedly stated that issuers cannot avoid the federal securities laws just by labelling 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.”
Telegram takes a stand
Telegram, however, is fighting back against the SEC. The messaging giant has now filed a response to the regulators on Wednesday stating that the emergency injunction imposed on it had no warrant whatsoever. Mentioned in the filing, the company has requested the court to deny the SEC’s injunction request as well as the SEC’s demand for Telegram to produce documents and witnesses and have the court call on the SEC and Telegram to submit “an expedited case schedule to resolve the legal issues underpinning the SEC’s claims.”
Telegram argued that its token is not a security and the SEC shouldn’t be forcing it to share any documents related to their blockchain project. The filing explains that Telegram did not offer any securities to the public via an ICO sale referring to the fact that it raised the $1.7 billion using a Simple Agreement for Future Tokens (SAFT) framework. An excerpt from the filing reads:
“Telegram entered into private purchase agreements with a limited number of highly sophisticated purchasers (the ‘Private Placement’) that provided for the future payment of a currency (grams) but only following the completion and launch of the TON Blockchain,” it further added “Significantly, Telegram has already treated the Private Placement as a securities offering pursuant to valid exemptions to registration under the Securities Act of 1933. 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. “
As of now, Telegram is ready to hold off the launch of the TON blockchain which was supposed to go live on October 31 until all “regulatory issues are resolved.” The company also emailed the investors notifying them of the fact that the company won’t be able to launch as expected because “the recent SEC lawsuit has made that timing unachievable.” The email asked investors to grant an extension to the company and also noted a clause in the investor’s contract which stated that a refund would be offered if TON wasn’t live as per the given date.