Telegram Group and its wholly-owned subsidiary TON Issuer Inc. are facing a lawsuit filed by the U.S. Securities and Exchange Commission (SEC) for allegedly conducting an unregistered digital token offering or initial coin offering (ICO).
On Friday, the SEC announced that it obtained an emergency restraining order against Telegram, which raised $1.7 billion selling its digital token called Grams in the United States and overseas.
In its complaint, the securities regulator alleged that Telegram sold approximately 2.9 billion Grams to 171 initial purchasers worldwide. In the United States 39 investors acquired Grams worth more than $1 billion. The company allegedly priced its digital token at a discount to its initial buyers.
Additionally, the SEC alleged that the company started raising capital since January 2018. It is using the money to develop its blockchain the Telegram Open Network or TON Blockchain and its mobile messaging app called Telegram Messenger.
Furthermore, the securities regulator alleged that the company promised its initial purchasers that it will deliver the digital tokens no later than October 31, 2019. Telegram and its initial purchasers are expecting to be able to sell billions of Grams into the U.S. markets.
With the restraining order, the SEC halted Telegram’s digital token offering, which the company failed to register. The securities regulator said the company violated the registration provisions of the Securities Act of 1939.
In a statement, Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, said their legal action aims to prevent Telegram from flooding the U.S. markets with unlawfully sold digital tokens.
In addition, Avakian said, “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.”
On the other hand, Avakian’s Co-Director Seven Pelkian commented, “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.”