On Oct 11, the SEC secured an emergency restraining order against the Telegram Group and its subsidiary developing the TON blockchain network against their $1.7 billion sale of gram tokens. SEC Division of Enforcement co-director Stephanie Avakian said at the time that the emergency action was “intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold.”
Messaging app firm Telegram has made a new plea to a U.S. court to drop an action brought by the Securities and Exchange Commission (SEC) alleging its yet-to-be launched token is a security.
In a filing to the district court of the Southern District of New York on Tuesday, Telegram broke down and refuted all the allegations made by the SEC in its case brought last month, barring some fundamentals such as the nature of the company and its team and uncontested details of its fundraise.
However, while sold, the gram tokens still are not yet issued or distributed to investors and were not to have been until the launch of the TON blockchain. That had been scheduled for Oct. 31, but was delayed by the SEC case.
“[The SEC’s] claims are without merit as Telegram’s private placement to highly sophisticated, accredited investors was conducted pursuant to valid exemptions to registration under the federal securities laws and Grams will not be securities when they are created at the time of launch of the TON Blockchain,” said Telegram in the latest filing.
In its announcement of the court action, another SEC Division of Enforcement 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.”
Telegram takes issue with this stance in the filing too, saying that the SEC has “engaged in improper ‘regulation by enforcement’ in this nascent area of the law, failed to provide clear guidance and fair notice of its views as to what conduct constitutes a violation of the federal securities laws, and has now adopted an ad hoc legal position that is contrary to judicial precedent and the publicly expressed views of its own high-ranking officials.”
Telegram further claimed that it had “voluntarily engaged” with the SEC seeking guidance to avoid breaking federal securities laws. Yet the SEC “failed to provide [guidance] prior to bringing this enforcement action.”
The company again stressed that its gram tokens have not yet been created, claiming that “if and when they do, they will constitute a currency and/or commodity – not securities under the federal securities laws.”
Telegram conceded it didn’t file a registration statement with the SEC because “none was, is or will be required under the federal securities laws.”
As such the firm asked the district court to deny the SEC’s claim for relief and dismiss the claims against it “with prejudice and order such further relief as the Court deems just and proper.”
The matter will not be decided until at least Feb. 18–19, when the next hearing is to be held. The hearing had originally been slated for Oct. 24 but the date was moved forward to allow both parties time for discovery in the case. Telegram has agreed to delay launch of both the TON blockchain and the token until after that date.