The developers of the Telegram Open Network and its corresponding TON token have responded to investors with a letter after the United States Securities and Exchange Commission (SEC) abruptly announced last week that the $1.7 billion ICO that the project held last year was an “unregistered, ongoing digital token offering.”
According to the letter, which was obtained by U.Today, Telegram has been attempting to solicit feedback from the SEC on the TON project for the past 18 months, and that “we were surprised and disappointed that the SEC chose to file the lawsuit under these circumstances.”
“We disagree with the SEC's legal position,” the letter says.
Telegram continued to say that it is in the process of assessing how to resolve the situation, and as such, is considering delaying the launch of the TON token: "we are continuing to evaluate the best means by which to resolve the situation in the interests of relevant parties, including but not limited to assessing whether to seek to delay the launch date," the letter said.
The TON Board Channel on Telegram announced on Saturday, October 12th, removed all its previous posts and announced that it would be “taking a break” in the face of the regulatory uncertainty that it is currently facing.
”Issuers cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token.”
News that the SEC filed an “emergency action” in order to halt the TON token offering came on Friday, October 11th, with a sudden announcement from the regulator.
“Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, in a statement. “We allege that the defendants have failed to provide investors with information regarding Grams and Telegram’s business operations, financial condition, risk factors, and management that the securities laws require.”
Steven Peikin, Co-Director of the SEC’s Division of Enforcement, said in the same statement that Telegram failed to adequately address legal requirements: “We have repeatedly stated that issuers cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token,” he explained.
Contingency plans?
New York Times tech reporter Nathaniel Popper pointed out on Twitter that the SEC’s filing against Telegram could imply poor judgment on the part of some of the larger venture capital firms that invested in the project: "The SEC's move to shut down Telegram's crypto project raises questions about the big venture capital firms that gave it $1.7 billion and convinced themselves that it would pass regulatory muster," he wrote on Twitter. "That includes Benchmark, Sequoia, and Lightspeed."
The SEC's move to shut down Telegram's crypto project raises questions about the big venture capital firms that gave it $1.7 billion and convinced themselves that it would pass regulatory muster. That includes Benchmark, Sequoia and Lightspeed.
— Nathaniel Popper (@nathanielpopper) October 11, 2019
However, David Gerard, author of Attack of the 50-Foot Blockchain : Bitcoin , Blockchain, Ethereum & Smart Contracts wrote in a blog post that there is some legal precedent for project failure outlined in the leaked document that appears to be the Purchase Agreement for Grams: “if the ‘Network Launch’ does not occur — and Telegram does not issue the Gram tokens by 31 October 2019 — they will have to pay back the purchasers the $1.7 billion of actual US dollars they’ve already received,” he said.
However, Gerard also noted that the “agreement doesn’t clearly define what would count as a failure.”
I spent the last couple of weeks neck deep in .@telegram's #TON, researching everything from tech to token economy.
Here are 10 things you need to know ahead of its launch ?? — Elias Simos (@eliasimos) October 9, 2019
Mikko Ohtamaa, CTO of blockchain-powered investment market TokenMarket, also pointed out on Twitter that it is unclear exactly where the SEC’s legal jurisdiction over the project begins and ends due to the fact that the TON token sale took place across a number of different countries. The Telegram Open Network itself is established in the British Virgin Islands.
"[The] SEC cannot shutdown the project or limit secondary markets outside United States. Neither can Telegram itself - tokens are no longer Telegram's," he wrote on Twitter. "What SEC can do is to prevent listing the token on Coinbase and exposure to US retail investors."
This is incorrect. SEC cannot shutdown the project or limit secondary markets outside United States. Neither can Telegram itself - tokens are no longer Telegram's. What SEC can do is to prevent listing the token on Coinbase and exposure to US retail investors.
— Mikko Ohtamaa (@moo9000) October 12, 2019
Ohtamaa said that, given the timing of the complaint, it seems that the “SEC [is trying] to stop the train on [the] last minute before it leaves the station.” However, in his opinion, “Telegram does not give a piss.”
