US SEC halts $1.7bn token offering

October 14, 2019

The US Securities and Exchange Commission (SEC) has halted the $1.7bn digital token offering in the US and overseas of Telegram Group.

An emergency action and temporary restraining order has been filed by the SEC for two offshore entities for conducting an alleged unregistered token offering.

The SEC claims Telegram Group and its wholly-owned subsidiary TON Issuer began raising capital in January 2018 to finance its operations, including the development of its blockchain (The Telegram Open Network and TON blockchain), and its mobile messaging application.

They sold around 2.9 billion tokens, called Grams, at discounted prices to 171 initial purchasers around the world. This included over one billion Grams to 39 US purchasers.

Telegram had promised to deliver the Grams to initial purchasers at launch of its blockchain, no later than October 31 2019. The purchasers and Telegram would then be able to sell billions of Grams in the US markets.

The SEC has said the defendants failed to register their offices and sales of Gram, a violation of the Securities Act of 1933.

“Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “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.”

The compliant seeks emergency relief and permanent injunctions, disgorgement with prejudgment interest and civil penalties.

SEC division of enforcement co-director Steven Peikin said, “We have repeatedly stated that issuers cannot avoid the federal securities laws just by labelling 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.”