Telegram’s crypto ambitions could be in jeopardy thanks to an emergency restraining order secured by the U.S. Securities and Exchange Commission (SEC) against the Telegram Group and its subsidiary Telegram Open Network (TON). This has, at least for the time being, put the breaks on the $1.7 billion digital token offering.
Telegram Open Network offered its own digital tokens, called Grams, at a discount to initial purchasers. 39 U.S. purchasers account for over 1 billion of the approximately 2.9 billion Grams already sold. TON pledged to launch its blockchain and deliver the Grams by October 31, 2019, but this looks increasingly less likely.
Crypto crackdown: digital tokens not above the law
The SEC alleges that Grams are securities and that Telegram violated the Securities Act of 1933 by failing to register the offer and sale of the tokens. In a statement, SEC Division of Enforcement co-director Stephanie Avakia clarified that the emergency order seeks to “prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold”.
The SEC furthermore states that companies cannot attempt to skirt federal laws simply by calling their product a cryptocurrency or digital token and that Telegram has failed to comply with its responsibilities to disclose information about the token and its operations.
Telegram “surprised and disappointed”
In a letter to investors Telegram expressed surprise at the SEC’s lawsuit, stressing that it had been cooperating with the SEC over the past 18 months:
“We were surprised and disappointed that the SEC chose to file the lawsuit under these circumstances, and we disagree with the SEC's legal position.”
The SEC’s restraining order just a few weeks before launch speaks to the concern that, with the tokens being issued by before October 31, that the US market could become a dumping ground for the TON tokens before investors are adequately informed.
Is Telegram cryptocurrencies dead in the water?
Telegram has stated that it is attempting resolve the situation “including but not limited to assessing whether to seek to delay the launch date.” Telegram and the SEC may very well settle but the token launch will likely be delayed.
In the case of failure to launch, a leaked document purporting to be the ICO Purchase Agreement for Gram indicates that Telegram would have to pay back the $1.7 billion dollars from U.S. purchasers. However, the SEC only has jurisdiction in the U.S. and can only complicate, but not prevent, TON from operating in other markets if Telegram proceeds without SEC approval.