Ex parte injunction
The Securities and Exchange Commission (“SEC“) announced today that it filed an emergency application ex parte in US Federal District Court in Manhattan, and after a hearing, obtained a temporary order over the initial coin offering (“ICO“) launched by Telegram Group, Inc. (“Telegram“), the messaging application, which raised $1.7 billion from investors around the world thus far.
According to the SEC, Telegram and its subsidiary, TON Issuer Inc., started to solicit money from investors for its ICO commencing in January 2018 to finance its operations, and its fund-raising activities were global and included the solicitation of funds from US investors. In January 2018, Telegram represented it was creating its own Blockchain called the Telegram Open Network. It is alleged to have sold 2.9 billion units to 171 investors, which in the ICO world translates into 2.9 billion digital currency tokens which were called Grams. Over 39 of those investors were resident in the US.
Part of the representation to investors, alleges the SEC, was the delivery of the Gram tokens to investors in a digital currency wallet by October 2019, ergo, the promise of liquidity and control of the investment, similar to a representation that an investor’s funds would be used to purchase shares that were liquid and tradable.
No registration of securities
Telegram allegedly did not register the offering or the sale of its ICO with the SEC. Part of the requirement of selling investments to the public, subject to an exemption, includes disclosing to investors the information they need to make informed decisions such as risk factors, the legality of the offering, the financial condition of the issuer, the expertise and experience of its management and information in respect of insiders, as well as any material information.
The white paper for the TON ICO is here.
The SEC is seeking a permanent injunction, disgorgement of the proceeds of the ICO sales and civil penalties against the two corporate defendants.
Joint statement by SEC, CFTC and FinCEN
At the same time, the SEC, CFTC and FinCEN issued a joint statement in respect of the anti-money laundering and counter terrorist financing obligations of entities that engage in the business of money transmission (whether registered or not), including activities of accepting currency, funds or value, or selling securities, or providing exchange services, including ICOs that transmit and accept digital currencies on behalf of others as their business.