Last week, the New York Southern District Court Judge Kevin Castel issued a preliminary injunction in the case, prohibiting the issuance and distribution of the tokens for the messaging app company’s blockchain TON.
Telegram has asked a court to clarify what exactly it must do to comply with the U.S. Securities and Exchange Commission (SEC) order banning the issuance of its gram tokens.
The judge decided that the SEC “has shown a substantial likelihood of success in proving” that Telegram’s private placement of tokens was an unregistered securities sale.
However, Telegram is still waiting for a more detailed order prescribing what exactly it can and cannot do as it prepares to launch its blockchain and investors await their paid-for gram tokens.
In a letter to Judge Castel on Friday, the company’s lawyer Alexander Drylewsky asked the court to clarify if the ban applies to the non-U.S. investors in TON. According to the court documents, about a quarter ($424.5 million) of the $1.7 billion Telegram raised in two rounds in February and March 2018 came from the U.S. investors. The rest, Telegram argues, are not subject to U.S. securities laws.
The company said it’s willing to take steps to fence off American investors while still fulfilling its obligations for others. “Should the Court require, Defendants will implement safeguards to protect against non-U.S. Private Placement purchasers reselling Grams to U.S. purchasers in the future,» the letter reads.
Such measures, it adds, could include a condition that non-U.S. investors may can only receive their grams if they are not going to resell them in the U.S., and that Telegram could “configure the TON digital wallet to preclude U.S.-based addresses.”
U.S. securities law only covers transactions in securities listed on domestic exchanges, and domestic transactions in other securities, the company argues, so Telegram still has “irrevocable liability” for its investors in other nations.
Telegram Lawyers Say Proving Data-Privacy Compliance May Take Months
Lawyers representing the messenger giant Telegram have stated that a review of financial records requested by the United States Securities and Exchange Commission (SEC) will take five to seven weeks to prepare.
In a Jan. 9 court filing, the lawyers explained that they must analyze data protection laws in a number of foreign jurisdictions, greatly lengthening the process.
The filing stated that to ensure Telegram’s compliance with all foreign data privacy laws would require an analysis of approximately 4,600 transactions, involving around 770 entities and individuals.
A preliminary sample of roughly 10% of these entities implicated 12 foreign jurisdictions with which it had previous experience, and two it had not yet encountered in its prior work.
The required analysis to perform this work on all 770 entities, along with the subsequent redactions needed to comply with the relevant data privacy laws, could take almost two months, it claimed.
No bank records, but Telegram must demonstrate compliance
As Cointelegraph reported, the court this week denied the SEC’s request to make Telegram reveal its financial records relating to how it spent the $1.7 billion raised in its 2018 initial coin offering (ICO).
However, the court did rule that Telegram must show that these records comply with all of the relevant data privacy laws in foreign jurisdictions. This latest filing is simply stating that this information will take some time to prepare.
The SEC first filed an emergency order against Telegram in October, claiming that the ICO constituted an unregistered securities sale.
Telegram founder Pavel Durov along with two of the firm’s employees were expected to give a deposition in the case earlier his week.
