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SEC halts Telegram token sale, labels ‘Grams’ as securities

The SEC has taken abrupt action to halt the Telegram token sale just weeks before the company planned to launch its ‘Gram’ token. The crowdsale, which raised over $1.7 billion from institutional and accredited investors in the form of SAFT agreements, may have constituted the sale of an unregistered digital token offering.

Given how lawmakers and regulators have responded to Facebook’s Libra, it is no surprise that the SEC has taken a dim view of another private company proposing to issue a crypto asset to its 200-million strong potential user base.

SEC complaint calls ‘Gram’ tokens securities

On October 11, the US Securities and Exchange Commission (SEC) published a press release to inform the public that it has filed an emergency action and temporary restraining order against the entities behind the $1.7 billion Telegram token sale.

The SEC alleges that Telegram Group Inc. and TON Issuer Inc. have failed to register the sale of ‘Grams,’ which the regulator considers securities. According to the press release, TON sold roughly 2.9 billion ‘Gram’ tokens to 171 investors globally, of which 39 are based in the US. As a result, the token sale is in violation of US Securities Law.

“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,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement.

Steven Peikin, Co-Director of the SEC’s Division of Enforcement, added: “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.”

Telegram and its subsidiary, TON Issuer, have been charged with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act.

October 31 launch date now in jeopardy

In January 2018, Telegram Inc., the company behind the popular encrypted messaging service Telegram, launched a private token sale to fund the development of TON – the Telegram Open Network – using Simple Agreement for Future Tokens (SAFT) contracts.

As Brave New Coin reported in September, Telegram announced that it intends to launch the Gram token by October 31, 2019, to comply with its investor agreements. As part of the expected launch, the company plans to release a batch of Gram tokens and a digital wallet that will enable investors to store the crypto asset.

In light of the charges against the company, it is now unclear whether the launch of Gram will take place at all. However, according to a New York Times report, if Telegram does not deliver its Gram tokens by October 31, they will need to refund investors in full. That puts Telegram into a difficult position, which could result in the ambitious project folding before it ever got off the ground.

Is Gram getting “Libra-ed?”

If you have been following the Facebook Libra saga, it will come as little surprise that a US regulator is trying to put a stop to the launch of a digital currency that would be immediately accessible to over 200 million users worldwide.

US lawmakers – and many of their counterparts in Europe – have made it clear that they are not prepared to allow a private company to issue a digital currency that could compete with the dollar, the euro or other major fiat currencies.

Given that Telegram’s token would – as far as we know – run on a decentralized ledger that would function with little to no oversight or interference by Telegram, the digital currency’s use would be fair game for anyone to use. That also means that the digital token could be used for money laundering and terrorist financing.

Additionally, unlike Libra, Telegram has not announced that its digital currency would have a stability mechanism or that it would be supported by a range of financial institutions and technology companies. Therefore, unlike Libra, it lacks the “official touch” that regulators and lawmakers prefer.

It is difficult to imagine a scenario where Libra is being blocked by lawmakers, and ‘Gram’ is able to launch without any pushback.

The currency wars have begun. Are corporate coins no longer viable? Which nation state will be the first to launch a central bank digital currency? Will ‘Grams’ be tradable on digital asset exchanges on October 31? The crypto asset space is heating up.


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