Telegram loses fight against the SEC over its Gram cryptocurrency
The Gram digital token is almost definitely a security, according to the courts
After a long battle between Telegram and the US Securities and Exchange Commission (SEC), the SEC has ended up victorious, at least for now. Telegram has received an order from the United States District Court to halt any issuance of GRAM tokens for the time being. The battle against Telegram started October last year after Telegram Open Network (TON) issued its initial coin offering (ICO). On March 24, the SEC filed a request to obtain a preliminary injunction from the court, and the judge presiding over the case has agreed.
“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. 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,” wrote the Court in response to the request.
It looks as if the SEC already had a successful strategy to push back many ICOs. It has taken the stance under the 1934 Howey Test, meaning that such offerings constitute the sale of unregistered securities. Telegram filed a Form D 506(c) Notice of Exempt Offering of Securities before the first round, but the court noted something in addition. “Telegram’s sale of Grams to the Initial Purchasers, who will function as statutory underwriters, is the first step in an ongoing public distribution of securities and, as such, Telegram cannot receive the benefit of an exemption from the registration requirement under either section 4(a) or Rule 506(c).