Last Friday, just 2 weeks before the launch deadline of Telegram’s highly anticipated $1.7 billion Telegram Open Network (TON) blockchain, the SEC filed an emergency action halting the launch and distribution of the TON token, Gram.
In the emergency action, the SEC alleges that Telegram’s $1.7 billion private presale of Gram and impending token distribution were in violation of securities laws, and compelled Telegram to halt the launch of the blockchain, turn over significant data and details around the token sale and Telegram operations, return all funds to the investors (with interest), and pay a penalty to the SEC for violating securities law.
On Thursday, October 17, Telegram filed their official response to the SEC’s complaint via their retained counsel Skadden Arps, providing additional details that paint the allegations and actions of the SEC in a different light.
Over the last 18 months, in a self-imposed effort to be compliant with SEC regulations, Telegram had been voluntarily engaging with and soliciting feedback from the SEC regarding the TON Blockchain and Grams.
Voluntarily, the defense states, Telegram:
During the 18 months through which Telegram was voluntarily engaging with the SEC (and despite the SEC knowing about the October 31, 2019 launch-or-die deadline), the SEC:
Adding insult to injury, Telegram, in response to the SEC’s Friday complaint, proposed to voluntarily delay the launch of TON and distributions of Gram (effectively achieving the same practical result as an injunction) until the court can resolve the legal issues at the hear of the matter.
The SEC refused the offer, insisting instead on a broad and burdensome “'emergency discovery’ despite the absence of any emergency”.
Placing the SECs (questionable) actions aside, Telegram’s response goes on to make their case against the SECs (“fundamentally flawed”) position that Grams are securities.
In their defense, Telegram doubles down on their position that Grams are not securities, but instead “merely… a currency or commodity (like gold, silver or sugar)… once the TON Blockchain launches.”
Telegram distinguishes the Grams themselves from the purchase contracts - which were "private purchase agreements with a limited number of highly sophisticated purchasers… providing for the future payment of a currency but only following the completion and launch of the TON Blockchain.”
Alongside Telegram’s 6-page official response, Telegram appended 40 pages of disclosures including email correspondence, proposed agreements, and the list of documents the SEC is requesting from Telegram:
Telegram closes its response with a request to the Court to deny the SEC’s request for a preliminary injunction, and enter instead into an order that:
A Court hearing is scheduled in the Southern District of New York for October 24, during which the Court will decide on how the case will proceed.
The core issue - whether or not Grams are a security or a currency - will be resolved over the next few months.
More urgently, Telegram and the SEC will each make their case for whether or not an injunction (effectively killing TON) is necessary, and whether or not Telegram will be obligated to produce the documentation listed above.
We’ll continue to follow this story and will be publishing updates as they emerge.