Telegram’s battle with the American authorities has ended with the social media app agreeing to pay back all the proceeds made from its cryptocurrency project and to pay a hefty fine.
Two years ago the news broke that messaging service Telegram was planning to launch its a blockchain platform and its own cryptocurrency to make payments within the app. It began to raise money for Telegram Open Network (TON) in January 2018 by selling digital tokens called Grams. However, the U.S. Securities and Exchange Commission (SEC) halted the sale of tokens in October 2019. The regulator accused Telegram of having conducted an unregistered offering of digital tokens. That kicked off a legal battle between the SEC and Telegram.
On March 24, 2020, the battle took another turn after the U.S. District Court for the Southern District of New York issued a preliminary injunction barring the delivery of Grams and finding that the SEC had shown a substantial likelihood of proving that Telegram’s sales were part of a larger scheme to unlawfully distribute the Grams to the secondary public market.
Then in mid-May Telegram CEO and founder Pavel Durov announced on a blog that it was shutting down TON. “Today is a sad day for us here at Telegram,” he said.
Durov likened the case to people banding together to invest in a gold mine and agreeing to split the winnings between them only for “a judge [to coma along and say,] ‘These people invested in the gold mine because they were looking for profits. And they didn’t want that gold for themselves, they wanted to sell it to other people. Because of this, they are not allowed to get the gold.’”
Durov added, “If this doesn’t make sense to you, you are not alone – but this is exactly what happened with TON (the mine) and Grams (the gold). A judge used this reasoning to rule that people should not be allowed to buy or sell Grams like they can buy or sell bitcoins.”
He also lashed out against the US banning TONs from being sold anywhere else in the world as it argued that this could still mean the cryptocurrency could be traded within the US. Durov said that the case showed that even though companies outside the US can elect their own governments and their own parliaments, the are “still dependent on the United States when it comes to finance and technology.”
Durov concluded by saying that everyone “striving for decentralisation, balance and equality in the world” are “fighting the right battle”, one that “may well be the most important battle of our generation. We hope that you succeed where we have failed.”
Now the battle has ended with the social media platform agreeing to pay back the $1.2bn it raised through the sale of Grams. It also accepted to pay a $18.5m. Telegram will also be required to notify the SEC staff before participating in the issuance of any digital assets over the next three years.Telegram has neither denied or admitted to any wrongdoings.
“New and innovative businesses are welcome to participate in our capital markets but they cannot do so in violation of the registration requirements of the federal securities laws,” said Kristina Littman, chief of the SEC Enforcement Division’s Cyber Unit. “This settlement requires Telegram to return funds to investors, imposes a significant penalty, and requires Telegram to give notice of future digital offerings.”
Lara Shalov Mehraban, associate regional director of the New York Regional Office, added, “Our emergency action protected retail investors from Telegram’s attempt to flood the markets with securities sold in an unregistered offering without providing full disclosures concerning their project. The remedies we obtained provide significant relief to investors and protect retail investors from future illegal offerings by Telegram.”
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