The US Securities and Exchange Commission (SEC) has obtained an emergency restraining order against the Telegram Group and its subsidiary TON Issuer. The order has been secured in order to investigate the company’s $1.7 billion token sale.
The SEC revealed on October 11 that it had applied for and was granted an emergency action and restraining order suspending Telegram’s management from selling or distributing its Gram tokens in the US. The company’s network was expected to go live on October 31.
Telegram reportedly sold 2.9 billion Gram tokens “at discounted prices to 171 initial purchasers worldwide,” according to the release. The sale included over 1 billion Grams sold to US-based investors. The complaint has alleged that the messaging giant did not obtain approval before conducting the sale.
SEC Division of Enforcement co-director Stephanie Avakian stated that the emergency action has been taken to prevent Telegram from targeting the US markets with crypto tokens that we believe were sold without regulatory clearance.
Telegram allegedly failed to provide its token sale investors with information regarding the offering and the company’s business operations, Avakian noted.
SEC enforcement division co-director Steven Peikin said:
“We have repeatedly stated that issuers cannot avoid the federal securities laws just by labeling 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.”
The Telegram Group had been working on its TON blockchain project for more than a year. Rumors of the company’s initial coin offering (ICO) began circulating in early 2018.
Sources familiar with the matter revealed that the encrypted messaging service provider was planning to raise around $600 million through a pre-sale and an additional $700 million via a public token offering.
Telegram’s management said it had raised $1.7 billion in a Form D disclosure submitted to the SEC in March 2018.
The company has not disclosed the details regarding its development work. Last month, however, Telegram released code for its new platform. Telegram had not publicly acknowledged that it was developing TON until earlier this month, after it informed its investors via an email that the platform would go live in late October. The company also made changes to its terms and conditions.
Although the Gram token has not yet gone live, a secondary market for the digital asset has emerged, with small exchanges and OTC trading desks promising to sell the tokens once they’re available.
San Francisco-based crypto asset exchange Coinbase confirmed it would offer custody support for Grams once they’re live.
The SEC’s emergency action on October 11 comes only days after the federal regulator made a settlement with Cayman Islands-registered open-source software firm Block.one, the company behind the development of EOS. Block.one raised a record-breaking $4 billion through its token sale, however, the SEC only asked the firm to pay a $24 million fine. The SEC has not asked Block.one to register EOS tokens as a security.