Telegram can't seem to catch a break, and the social communications company embroiled in a lawsuit with the U.S. Securities and Exchange Commission (SEC) might need to rethink its defense tactics. The SEC has continuously asserted that Telegram is offering illegal securities through the sale of its Gram digital currency, while the company counters that the tokens are not a form of security. Judge P. Kevin Castel, who is presiding over the case, has already determined that the SEC is most likely correct, and ordered Telegram to halt its token sales. Telegram wasn't ready to give in, though, and wanted the judge to determine that sales to investors outside the U.S. could proceed, since the SEC doesn't have jurisdiction over those individuals. That attempt has now fallen flat.
The SEC scoffed at the suggestion made by Telegram, and Castel agrees. The company is now forbidden, with complete clarity, from offering any Gram tokens to anyone – inside the U.S. or out. The judge explained that the ruling centers on the purchase agreements themselves, not who may or may not be a purchaser of the tokens. He added that the scheme includes, by Telegram's admission, subsequent sales on a secondary public market, which would, by default, require the company to obtain permission to hold a securities offering.
Telegram had hoped it could win court support by proposing the introduction of safeguards that would keep U.S. retail investors out of the picture, as well as prevent them from using the digital currency wallet associated with the Telegram Open Network (TON), the blockchain Gram sales were going to support.
However, the court determined that Telegram only now is trying to introduce the changes, not two years ago when the sales process was first implemented, and that the safeguards contradict TON's assertion of anonymity to investors who buy and sale the tokens. As a result, the court was forced to conclude that "any restriction as to whom a foreign Initial Purchaser could resell Grams would be of doubtful real-world enforceability. As to the TON Wallet, Telegram maintains that the TON Wallet is distinct from the TON Blockchain and is a useful but non-essential feature."
Telegram now finds itself in an incredibly tenuous situation. The TON blockchain has been moving forward while it fought the SEC, and was being developed with investor funds. However, these investors could now begin to request refunds, an idea that has already been floated, that would see Telegram lose 72% of the money collected. At this point, Telegram may have to concede defeat and salvage whatever is left to continue with its blockchain efforts.
The SEC scoffed at the suggestion made by Telegram, and Castel agrees. The company is now forbidden, with complete clarity, from offering any Gram tokens to anyone – inside the U.S. or out. The judge explained that the ruling centers on the purchase agreements themselves, not who may or may not be a purchaser of the tokens. He added that the scheme includes, by Telegram's admission, subsequent sales on a secondary public market, which would, by default, require the company to obtain permission to hold a securities offering.
Telegram had hoped it could win court support by proposing the introduction of safeguards that would keep U.S. retail investors out of the picture, as well as prevent them from using the digital currency wallet associated with the Telegram Open Network (TON), the blockchain Gram sales were going to support.
However, the court determined that Telegram only now is trying to introduce the changes, not two years ago when the sales process was first implemented, and that the safeguards contradict TON's assertion of anonymity to investors who buy and sale the tokens. As a result, the court was forced to conclude that "any restriction as to whom a foreign Initial Purchaser could resell Grams would be of doubtful real-world enforceability. As to the TON Wallet, Telegram maintains that the TON Wallet is distinct from the TON Blockchain and is a useful but non-essential feature."
Telegram now finds itself in an incredibly tenuous situation. The TON blockchain has been moving forward while it fought the SEC, and was being developed with investor funds. However, these investors could now begin to request refunds, an idea that has already been floated, that would see Telegram lose 72% of the money collected. At this point, Telegram may have to concede defeat and salvage whatever is left to continue with its blockchain efforts.
