SEC to Use Info From Investors to Stop GRAM ICO

The regulator’s lawsuit against the company does contain info that was not supposed to be divulged
15 October 2019   1413

In preparing the lawsuit against the Telegram Open Network (TON), the US Securities and Exchange Commission (SEC) relied heavily on information received from project investors, CoinDesk reports.

This was confirmed to the Internet publication by the CEO of HASH CIB, Yakov Barinsky, who advised some of the funds that invested in TON. According to him, in September, the regulator contacted the American investors of the project and requested information about the data that was provided to them for its promotion.

I know that the SEC reached out to them asking how the deal was arranged, what information TON shared, what documents have been circulated and whether there was any omission of information.
 

Yakov Barinsky

CEO, HASH CIB

The regulator’s lawsuit does contain information that was not supposed to be divulged. In particular, the SEC cites “a presentation for a single investor from the US in January 2018.” To attract him, “Telegram talked about his“ high-level technical service ”and“ the possible return on investment in 0x-50x ”.

SEC used the information received to substantiate the conclusion that during the Gram token sale the placement of unregistered securities.

$27.5 million worth of Grams in early 2018 for tokens that had no use and would have no use at the time of launch, demonstrating its intent to profit from the potential increase in value of Grams.
 

SEC

It was probably investor evidence that enabled the SEC to classify Gram as a security. According to the Howie test, the regulator received confirmation of the fact of investments and expectations of profit from them. In addition, the funds are invested in a regular enterprise and the size of the possible profit does not depend on the efforts of the investor.

However, two other TON investors interviewed by CoinDesk said they were not promised a “0x-50x return.” Such inconsistencies in disclosed information could be another alarm to the SEC.

 

Court to Ban TON Tokens Release

U.S. District Judge P. Kevin Castel, of the Southern District of New York issued a temporary restiction, therefore supporing the SEC
25 March 2020   944

The American court issued an order to the developer of the Telegram messenger, according to which he should refrain from the distribution of tokens of the TON blockchain project planned for next month.

According to CoinDesk, on March 24, the District Judge of the Southern District of New York, Kevin Castel, issued a temporary injunction, recognizing the SEC's arguments regarding the sale of unregistered securities by the company as reasonable.

The Court finds that the SEC has shown a substantial likelihood of success in proving that the contracts and understandings at issue, including the sale of 2.9 billion Grams to 175 purchasers in exchange for $1.7 billion, are part of a larger scheme to distribute those Grams into a secondary public market, which would be supported by Telegram’s ongoing efforts.

 

Kevin Castel

U.S. District Judge

According to the judge, this feature does not allow considering the Telegram offer as subject to exceptional conditions. He also noted that Telegram structured its project in such a way as to attract “the maximum number of primary buyers” against the background of the expectation of maximum profit at the time of launch.

Considering the economic realities under the Howey test, the Court finds that, in the context of that scheme, the resale of Grams into the secondary public market would be an integral part of the sale of securities without a required registration statement. 

 

Kevin Castel

U.S. District Judge

Conducting an analysis from the standpoint of the Howey test, the judge stated that buyers expected to profit from participating in the campaign. Moreover, although Telegram may argue that it will not become a guiding force in the further development of TON, “in fact,” it will be precisely this.

The judge agreed to distinguish between non-existent Gram tokens and securities purchased by TON investors, but refused to support Telegram's argument that Gram would be a commodity.

The Court rejects Telegram’s characterization of the purported security in this case. While helpful as a shorthand reference, the security in this case is not simply the Gram, which is little more than [an] alphanumeric cryptographic sequence.

 

Kevin Castel

U.S. District Judge

This is not the final decision, but it can serve as a powerful indicator of what position the court will adhere to further.