The US Securities and Exchange Commission has formally instructed Telegram Group, the guardian firm of the Telegram encrypted messaging service, to halt sales of its cryptocurrency Gram. The SEC says the corporate, and its crypto-focused subsidiary TON Issuer Inc., did not register an early sale of $1.7 billion of its crypto tokens previous to the October 31st launch of its blockchain community. Because the SEC treats cryptocurrency as securities, the company says Telegram is in violation of the Securities Act.
“Our emergency action today is intended to prevent Telegram from flooding the US markets with digital tokens that we allege were unlawfully sold,” writes Stephanie Avakian, the co-director of the SEC’s Division of Enforcement, in an announcement. “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.”
But if Telegram doesn’t distribute the “first batch” of tokens by October 31st, it has to present again the cash it raised, according to documents reviewed by The New York Times. According to the SEC, the buyers in Gram included 171 people and organizations worldwide that bought 2.9 million tokens. One million of these tokens had been purchased by 39 US purchasers. But Telegram by no means registered the sale, and consequently it broke the regulation, the SEC says, and will should forfeit the $1.7 billion it’s raised.
Telegram has additionally remained oddly quiet about key particulars of its so-called TON community. The blockchain platform is designed to be paired with a digital pockets that, like Facebook’s struggling Libra venture, goals to supply decentralized foreign money to anybody with a smartphone.
But the corporate solely formally acknowledged the community’s existence earlier this month in a letter to buyers disclosing its official launch date, according to crypto news website CoinDesk. Telegram has refused to reveal key particulars concerning the venture since canceling an preliminary coin providing in May of final yr, partly resulting from regulatory issues. The pre-sale of its tokens, later reported to have generated $1.7 billion, raised crimson flags amongst regulators and safety researchers involved that the dearth of oversight would make Telegram’s community interesting to cash launderers and drug sellers.
“We have repeatedly stated that issuers cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token,” writes Steven Peikin, fellow co-director of the SEC’s Division of Enforcement, in an announcement. “Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.”
The SEC filed at this time’s criticism in federal district courtroom in Manhattan. It prices Telegram and TON Issuer with violating two registration provisions of the Securities Act. The company is searching for “certain emergency relief, as well as permanent injunctions, disgorgement with prejudgment interest, and civil penalties.”