SEC files emergency action against Telegram Group over alleged $1.7bn unregistered digital token offering

The complaint alleges that Telegram Group Inc. and its subsidiary TON Issuer Inc. failed to register their offers and sales of digital tokens called “Grams”.

The United States Securities and Exchange Commission (SEC) has announced that it has taken an emergency action and obtained temporary restraining order against Telegram Group Inc. and its wholly-owned subsidiary TON Issuer Inc. The entities allegedly conducted an unregistered, ongoing digital token offering which has raised more than $1.7 billion of investor funds.

According to the SEC’s complaint, Telegram Group and TON Issuer Inc. started raising capital in January 2018 to finance the companies’ business, including the development of their own blockchain, the “Telegram Open Network” or “TON Blockchain,” as well as the mobile messaging application Telegram Messenger. The companies sold approximately 2.9 billion digital tokens called “Grams” at discounted prices to 171 initial purchasers worldwide, including more than 1 billion Grams to 39 US purchasers.

Telegram promised to deliver the Grams to the initial purchasers upon the launch of its blockchain by no later than October 31, 2019, at which time the purchasers and Telegram will be able to sell billions of Grams into US markets.

The SEC’s complaint alleges that the companies failed to register their offers and sales of Grams, which are securities, thus violating of the registration provisions of the Securities Act of 1933.

Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, explained that the emergency action aims to “prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold”.

“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”, Stephanie Avakian added.

The SEC’s complaint, filed on Friday, October 11, 2019, in federal district court in Manhattan, charges both companies with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act. The regulator seeks certain emergency relief, as well as permanent injunctions, disgorgement with prejudgment interest, and civil penalties against the defendants.