When the U.S. Securities Exchange Commission finds American investors are or might be jeopardized by unregistered securities offerings, it springs into action.
Now, encrypted messenger company Telegram is doing some springing itself after being put on its back foot by an emergency restraining order the SEC won against the firm’s Gram token sale last week.
Indeed, not only has Telegram asked its Gram investors to consider extending the deadline of the launch of the Telegram Open Network (TON) blockchain to next year, but it’s also responded to the SEC in arguing that the gram is not a security and thus beyond the Commission’s purview.
Agree to Disagree, Says Telegram
On October 16th, the app company filed a response to the SEC in the U.S. District Court for the Southern District of New York. Therein, Telegram noted that it had agreed to “not make any offers, sales or deliveries of its expected cryptocurrency … to maintain the status quo until this Court can resolve the legal issues at the heart of this matter.”
Yet that offer was rejected by the SEC, which has insisted that Telegram hold to the original October 11th restraining order and deliver all the documents the Commission has requested.
That position isn’t surprising in light of an email that Telegram just sent to its Gram investors, which noted the company planned to hold its ground in the case.
“We disagree with the SEC’s legal position and intend to vigorously defend the lawsuit,” Telegram said.
However, the shrewdness of such a fight is up for debate. Some analysts in the space highlighted how the SEC’s recent lenient treatment of the EOS and Sia unregistered securities offerings likely resulted from these projects playing ball with the SEC early and often rather than playing dogged defense from the start.
With that said, if Telegram chooses to follow the path Kik has taken in fighting against the SEC over its Kin token, the Gram project probably won’t be receiving much mercy from the regulator. The Commission alleges that more than $425 million of the $1.7 billion Telegram has raised from Gram tokens so far has come from American investors.
Give Us Some More Time, Won’t You?
In that aforementioned new email to Gram investors, Telegram explained that the originally scheduled October 2019 launch for TON and its associated currency was no longer realistic.
Instead, the company asked if investors would consider making the network’s new launch deadline April 30th, 2020.
“We are proposing to extend the deadline date in order to provide additional time to resolve the SEC’s lawsuit and work with other governmental authorities in advance of the launch of the TON network,” Telegram said.
Accordingly, investors who participated in either of Telegram’s $850 million Gram raises will vote on whether to approve the proposal. The app company said investors can receive 77 percent of their original investments back guaranteed if a majority of them decline to greenlight the new deadline, though the firm doesn’t want the situation to come to that.
“We look forward to receiving your support to ensure we can proceed with our vision for TON,” Telegram said.
SEC Turned to Investor Comms
According to recent reporting, the SEC turned to American investors who participated in the initial Gram sales for help with its October 11th injunction, specifically to see what kind of communications the Telegram team was providing to the venture’s stakeholders.
For instance, the Commission says that Telegram told one U.S. investors that the Gram offering could offer the “chance for 0x – 50x returns on the investment.”
The problem? The token would have no utility at launch, the SEC says, thus making it a security bearing expectations of profit.