US regulator blocks Telegram's US$1.7 bln crypto token sale

October 14, 2019 11:53
US authorities have halted a much-hyped digital token offering by the messaging service Telegram Group and its TON Issuer subsidiary, deeming the issuance ‘unlawful’. Photo: Reuters

The US Securities and Exchange Commission (SEC) has blocked a US$1.7 billion crypto token sale plan of messaging service Telegram’s blockchain initiative, putting the project in jeopardy.

Telegram Open Network (TON), the blockchain initiative of the Telegram, was reportedly scheduled to launch in October, with a native cryptocurrency named Gram.

TON aims to facilitate payments, host new kinds of decentralized applications (DApp), as well as provide e-wallet services, among other functions, with its new Gram cryptocurrency operating with a decentralized structure similar to Bitcoin, the largest cryptocurrency by market cap.

Telegram and its TON issuer subsidiary began raising capital in January 2018 for the unit, as well as its development in the TON blockchain.

But now there is bad news as the US securities watchdog said it has filed an emergency action and obtained a temporary restraining order against the firm over TON's US$1.7 billion planned token offering, as per media reports.

Telegram sold 2.9 billion Grams to 171 initial purchasers worldwide at discounted prices, according to regulators. A billion of those tokens were purchased by people in the US. The company said it would deliver the tokens to the purchasers by no later than October 31, 2019, and that the purchasers would be able to sell them into the market.

According to the SEC complaint, Telegram failed to register the offers and sales of the tokens, which the regulator considers to be securities.

“Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold,” Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, said in a statement.

"We allege that the defendants (Telegram and the TON issuer) 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,” the statement said.

Telegram promised investors it would deliver Grams by October 31 or return their money. But according to a note sent to investors and seen by Bloomberg, the company told investors it is evaluating ways to resolve the SEC's concerns, including potentially delaying the issuance of the tokens beyond the end-October target.

The company told investors that it has been in talks with the US regulator for the past 18 months regarding its project. “We were surprised and disappointed that the SEC chose to file the lawsuit under these circumstances,” it said.

Telegram, the popular encrypted messaging app with about 300 million users, is said to have raised capital in two private token sale rounds in 2018, from investors that included Benchmark and Sequoia Capital, after scrapping a public initial coin offering (ICO) due to regulatory scrutiny concerns.

Lately, the cryptocurrency project of another social network giant, Facebook, has seen several partners, including PayPal, eBay, Stripe, Visa and Mastercard, drop out of the project, reportedly due to regulatory pressure.

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