The Russian Telegram Open Network (TON) blockchain its gram cryptocurrency experienced a massive legal setback with a fresh injunction granted by Southern District of New York Judge P. Kevin Castel which agrees with the U.S. Securities and Exchange Commission (SEC), that TON’s plans amount to the distribution of securities, and require compliance with section 5 of the US Securities Act of 1933.
In early 2018, Telegram received $1.7 billion from 175 sophisticated entities and high net-worth individuals in exchange for a promise to deliver 2.9 billion Grams and Telegram believes the agreements to sell the 2.9 billion Grams are lawful private placements of securities covered by an exemption.
Telegram believes that only the agreements for Gram tokens with the individual purchasers are securities., that the cryptocurrency will not be delivered to these purchasers until the launch of Telegram’s new Telegram Open Network (TON) Blockchain. Telegram believes the anticipated resales of Grams by the 175 purchasers into a secondary public market via the TON Blockchain as wholly-unrelated transactions and argues they would not be the offering of securities.
Of course, the SEC sees things differently. They say the 175 initial purchasers are underwriters that will soon participate in a distribution of Grams in public where new participants will not have the same level of data that a registration statement would show.
More from the court document:
“Cryptocurrencies (sometimes called tokens or digital assets) are a lawful means of storing or transferring value and may fluctuate in value as any commodity would. In the abstract, an investment of money in a cryptocurrency utilized by members of a decentralized community connected via blockchain technology, which itself is administered by this community of users rather than by a common enterprise, is not likely to be deemed a security under the familiar test laid out in S.E.C. v. W.J….