Telegram, the popular messaging platform, was all set to rock the crypto world last year. The Telegram Open Network (TON) secured USD 1.7bn in funding from private investors and raised the second-largest initial coin offering of 2018. In return, Telegram promised to issue the first TON tokens, called Grams, by October 31 in 2019. Unfortunately, this didn’t happen, so where are we now?
Telegram vs the SEC: blow by blow
Telegram’s new cryptocurrency was slapped down by the SEC, which moved to block the ‘‘unlawfully sold’’ Gram tokens in October last year. The US regulatory body sees cryptocurrency as securities, the agency says Telegram is in violation of the Securities Act. But it hasn’t stopped there.
The SEC has provided damning new evidence in its case against Telegram. According to information revealed over the latest hearings, the company was actually selling Gram tokens several months after its initial coin offering (ICO).
At least two entities invoiced Telegram for a commission from selling Gram tokens in June and July of 2018, months after its ICO closed. Investment fund Da Vinci Capital and Gem Limited, a Maltese-based firm (which you may recognize from the Paradise Papers) requested a commission of $209,783 and $1.1 million, respectively, for “subsequent sales” of Gram tokens.
D for Damning
The invoices presented by the SEC contain some accounting records that should make Telegram sweat. Da Vinci Capital sold over US$2 million worth of Gram tokens to ITI Funds on June 20, 2018. Gem Limited sold US$8.6 million of Grams to Goliat Solutions and a further US$4.5 million to Space Investments Limited on July 2, 2018.
According to the SEC filing, “These documents undermine Telegram’s claimed affirmative defense that the Offering was exempt under Regulation D. First, Telegram either raised more than the $1.7 billion for which it claimed an exemption, or it did not raise $1.7 billion as of March 29, 2018 and the later funds may have been raised through underwriters,” Regulation D prohibits purchasers of tokens from selling securities to the issuer for a commission, effectively acting as underwriters.
The SEC has successfully sought an injunction against Telegram and requested full banking records of Telegram regarding the token sale. Telegram now has several weeks to provide counter-evidence and is blocked from launching its TON blockchain and Gram tokens until the case is settled. Both parties are set to return to court for the next round on February 18 and 19.
Telegram’s next move could shake the market
All eyes are on Telegram for now. According to their latest public statement, the company will ‘‘continue to build the TON Blockchain platform and work out the exact details of the project to ensure that the TON Blockchain and Grams can operate in a way that is compliant with all relevant laws and regulations’’.
Of course, the catch is determining which regulations are relevant. There are a couple of ways this could shake out.
First, Telegram may not be able to satisfy the courts, and be forced to refund 1.7bn dollars to investors and face a fine on top of that. This is likely to be discouraging to the cryptocurrency market as a while, and send shockwaves that could affect the prices of other coins. Other companies looking to launch their own coins may also see what happened to Telegram and re-evaluate their plans.
But it may be premature to bet against Telegram, despite the new evidence. The company has billions of dollars in their war chest to fight this legal battle. If Gram does get released, Telegram has a global userbase in the hundreds of millions that could give Gram unprecedented clout in the crypto market. Furthermore, the resolution of this high-profile case should set a precedent for other new cryptocurrencies, and present new regulatory clarity in the market that has been murky for a long time.
It’s unlikely that Telegram will force out the Gram without SEC approval. Although not a US company, the Telegram won’t want to upset the US government. After all, it depends on Apple and Google’s app stores to maintain its large userbase.
How can a trader profit from this situation?
First of all, by being patient and doing due diligence. Don’t be fooled to buy grams from any websites offering to sell. As Telegram itself has stressed, ‘‘Grams don't exist yet, nobody can buy or sell them before we announce the launch of TON Blockchain. Don't get scammed.’’
If things go south for Telegram and the crypto market takes a downturn, don’t forget that its still an opportunity for traders to profit.
On the other hand, if an agreement is reached, then it’s likely to increase mainstream trust in cryptocurrencies as a whole, as investors will be more aware of the applicable regulations. This trust will likely lead to increased adoption, and thus demand from buyers. That’s where traders with a diverse portfolio can benefit from increased value.
Traders are advised to follow the legal developments closely and act accordingly. Of course, the best way to be prepared for any outcome would be to use StormGain. Our crypto trading platform contains wallets for a range of top cryptocurrencies and allows 0-SWAP trades with up to 150x multipliers to quickly profit from your assets. Fees are transparent and among the lowest in the industry, and we also provide in-app trading signals to keep you up to date on market trends.
Are you prepared to profit from future developments in the exciting crypto market? Then register with StormGain now and start trading within seconds.
Welcome to StormGain - crypto trading platform!
Trade with 200x multiplierRegister now