Further, Telegram argued its upcoming gram token is not a security, and the SEC should not be able to force the company to produce documents or witnesses about its blockchain project.
Telegram is pushing back against the U.S. Securities and Exchange Commission (SEC).
The messaging platform filed a response to the securities regulator Wednesday, writing that the SEC’s emergency injunction last week was unwarranted. Telegram is asking a federal court to deny the regulator’s motion to enforce a subpoena.
The SEC filed an emergency action to prevent Telegram from distributing its gram tokens on Oct. 11, alleging that Telegram violated federal law by selling an unregistered security. In Wednesday’s filing, Telegram claims that gram tokens are not securities, and the SEC’s emergency action “runs counter to longstanding Supreme Court precedent, the SEC’s own views relating to other cryptocurrencies, and common sense.”
The filing explained that Telegram “did not … offer any securities to the public” through an ICO, referencing the $1.7 billion it raised using a Simple Agreement for Future Tokens (SAFT) framework.
“Telegram entered into private purchase agreements with a limited number of highly sophisticated purchasers (the ‘Private Placement’) that provided for the future payment of a currency (grams) but only following the completion and launch of the TON Blockchain”, the filing said, adding:
“Significantly, Telegram has already treated the Private Placement as a securities offering pursuant to valid exemptions to registration under the Securities Act of 1933. The grams themselves, as distinct from the purchase contracts, will merely be a currency or commodity (like gold, silver or sugar) – not a ‘security’ – once the TON Blockchain launches. “
As a result of the SEC’s action, however, Telegram is ready to hold off on launching the TON blockchain network and distributing tokens until all “regulatory issues are resolved”, the filing said.
Telegram emailed its investors after the SEC’s action, noting that while the company intended to launch TON at the end of October, “the recent SEC lawsuit has made that timing unachievable.” The email asked investors to grant the company an extension of time to get the network running, noting a clause in the investor contracts offering a refund if TON was not live by its Oct. 30 deadline.
In the filing, Telegram asked the court to deny the SEC’s injunction request, including the SEC’s demand for Telegram to produce documents and witnesses; as well as have the court call on the SEC and Telegram to submit “an expedited case schedule to resolve the legal issues underpinning the SEC’s claims.”
“There is no need for the Court to enter a preliminary injunction, which has the potential to be misconstrued by Telegram’s private placement subscribers and the public in this highly-publicized matter, where Telegram has already voluntarily agreed not to engage in the very conduct that the SEC is seeking to enjoin”, the filing said.
In supplementary material, Telegram’s attorneys attached a copy of the subpoena served by the SEC and email correspondence between the SEC and Telegram.