SEC halts Telegram’s alleged $1.7 billion unregistered digital token offering

October 14, 2019

The Securities and Exchange Commission has announced that it has filed an emergency action and obtained a temporary restraining order against two offshore entities. It is alleged that the two entities have been conducting an unregistered, ongoing digital token offering in the US and overseas that has raised more than $1.7 billion of investor funds.

According to the SEC’s complaint, Telegram Group Inc. and its wholly-owned subsidiary TON Issuer Inc. began raising capital in January 2018 to finance the companies’ business, including the development of their own blockchain, the “Telegram Open Network” or “TON Blockchain,” as well as the mobile messaging application Telegram Messenger.  Approximately 2.9 billion digital tokens called “Grams” were sold at discounted prices to 171 initial purchasers worldwide, including more than 1 billion Grams to 39 US purchasers. Telegram promised to deliver the Grams to the initial purchasers upon the launch of its blockchain by October 31, 2019, at which time the purchasers and Telegram would be able to sell billions of Grams into US markets. The SEC’s complaint alleges that the offers and sales of Grams were not registered. As they are securities, this violated the registration provisions of the Securities Act of 1933.

The SEC has filed its complaint in the federal district court in Manhattan. It charges both entities with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act, and seeks certain emergency relief, as well as permanent injunctions, disgorgement with prejudgment interest, and civil penalties.

Separately, it has been reported by several news outlets that Mastercard, Visa, eBay and payments firm Stripe, as well as, have pulled out of Facebook’s cryptocurrency project, Libra. Paypal had previously pulled out. Since the plans for Libra were announced, politicians and regulators around the world have raised concerns relating to global financial stability, undermining users’ privacy and enabling money laundering.