The Tale of SEC Regulating Telegram

It’s easiest to speak about events that happened a long time ago: put the right accents, check the facts, evaluate the consequences and bring the whole story to a logical conclusion. However, the story of TON is happening right now, live, in front of the eyes of the whole world.

It has a lot of obscure, contradictory, unsaid things and every day brings a fresh batch of news and rumors. Time will show how true the assumptions made in this article will be, and whether the facts on which they are based are so accurate.

Oh, here we go again

I would like to believe that the words from the widely cited appeal of TON developers to their investors are just an ordinary business passage, designed to politely chide opponents, preserving the civilized framework of the discussion:

"We were surprised and disappointed that the SEC chose to file the lawsuit under these circumstances, and we disagree with the SEC’s legal position."

But in reality, the lawyers said something like: “Well, then let’s stick to plan B” and turned on the reaction mechanisms to the actions of the SEC. The project managers, who raised almost two billion dollars from investors, could foresee such a turn of events. The US Securities and Exchange Commission has made statements that simply naming tokens not securities is not enough. For those who did not believe the seriousness of these statements, experiments were arranged, for example, with the Kik Interactive and Block.one projects.

Hype and private investors

The Telegram team did not want to run a common ICO. By the time the creators of the messenger were ripe for raising funds for the crypto platform development, ICOs were completely discredited, and the regulators were strict already. Therefore, raising funds in the style of venture capital investments was performed: only large sums were allowed to invest in the project, and the buyers of tokens should be qualified investors. Observing these basic conditions, one could count on the favor of the SEC and the successful completion of the necessary fundraising. Apparently, at first it was so: millionaires and entire companies lined up in order to offer money to the Telegram team.

Under cover of the night?

The whole process was kept in secrecy, without press releases, advertisements, promises and references. However, no matter how the Telegram management tried, the rumors were actively circulating, and boastful investors leaked some information. Such a mysterious atmosphere only fueled interest — ordinary users felt that something serious was up on the sidelines of the blockchain movement, and wanted to join. Rumors, gossip and the lack of statements on the official pages of the messenger became the reason for the appearance of a variety of speculations and bold assumptions.

The regime of secrecy is still not broken: all the latest news, as a rule, appears from third parties — “competent sources”, while the silence is kept in the official channels and pages of Telegram. Thus, all these considerations are based only on trust in the sources of some publications, SEC statements and indirect data.

So, what’s with the SEC?

According to the agreement with investors (the details of which are disclosed in the SEC lawsuit), Telegram was obliged to launch the project blockchain by October 31 of this year. If this does not happen, then the invested funds will have to be returned.

On October 11, the US Securities Commission filed a lawsuit in a New York court on prohibitive measures against two offshore companies working on the TON project. Reason: Gram sale is illegal — these are not digital tokens, but securities. Unusual thing is that earlier SEC decisions didn’t end up with filing an application with the court. Projects received information about this and took measures to resolve issues. Perhaps this fact was unexpected for the creators of TON.

If this is so, then, apparently, the creators of Telegram hoped that the situation would be resolved in the same way as with the recent SEC and Block.one dispute — a fine, without the participation of the court (by the way, we can assume that the more drastic measures taken by the regulator are just an excuse for a larger fine).

Investor Rights Watch

Another unusual circumstance of the SEC lawsuit is the declared concern for investors who have already parted with money. According to the statement, the Commission came to the defense of citizens who were not sufficiently acquainted, as required by law, with the details. The average TON investor is rather a solid citizen packed with several million dollars. It is assumed that such an investor is well versed in financial matters. Do they need extra protection?

An interesting question is the date the lawsuit was filed. SEC knew from the very beginning that Telegram was raising money. According to the creators of TON, the project specialists were constantly in touch with the Commission in order to quickly resolve any issues. However, it turned out that the claims arose right before the planned launch. Accidents are not accidental. Either one of the parties is not talking about the negotiation process, or the SEC rolled out the largest caliber guns on the deck because there were no other ways to prevent the launch.

Another possible explanation for the hasty lawsuit: all this time, the project investors did not disclose the details of the contract with Telegram, but still could not stand it and shared the terms of acquisition of Gram with SEC representatives.

Casuistry or the last desperate battle?

The SEC claims to TON can be talked about for a long time, but in the end there is nothing to come up with. Without legal formalism, how can one refute the accusation that the token purchased during the preliminary sale is a security just because it is still useless and the platform has not yet been launched?

Exactly the same reasonable, but useless arguments can be made on other charges of the SEC — common sense here, apparently, will not help. Perhaps some commentators are right, who believe that the SEC lawsuit against Telegram is just a stage in the unfolding attack on large cryptocurrency projects that could theoretically pose a threat to the traditional financial system. If so, then the most powerful lawyers and the most impeccable arguments here are really worthless — no one will listen to them.

What will happen next?

Forecasts are the patrimony of analysts, earning first on their visions of the future, and then on explaining the reasons that they did not come true. Without trying to take the bread from the predictors, it is worth thinking of several options and wait for the further development of events.

So, the possible actions of Telegram:

• pay the SEC and, judging by the circumstances, pay a lot;
• don’t pay the SEC, but return the money to American investors;
• the SEC will create special conditions for American users;
• reform the project by introducing the changes required by SEC;
• return money to all investors and enter into litigation with the SEC;
• don’t pay the SEC and don’t return funds to investors, because of force majeure;
• launch the project, but exclude American users from it;
• launch the project, not paying attention to the claims of the SEC.

A court hearing in the case is scheduled on Oct. 24 in New York.

Editor's Note:

The Bell, Russian media outlet, having studied the Gram purchase agreement signed by the participants of the second stage of the Telegram ICO, admits that Pavel Durov is not required to return the investment.

At the time of publication, it became known that the leaders of the Telegram can delay the launch of the TON blockchain platform with the Gram cryptocurrency for six months or a year. This was reported by TASS and Forbes, citing its sources. Later, Telegram has notified investors that the TON blockchain project will be launched later than planned, pushing the deadline from Oct. 30 to April 30, 2020.

The email, which was sent recently to investors in the second of Telegram’s two $850 million fundraising round from early 2018, says:

“We had intended to launch the TON network in late October. However, the recent SEC lawsuit has made that timing unachievable. We disagree with the SEC’s legal position and intend to vigorously defend the lawsuit. We are proposing to extend the deadline date in order to provide additional time to resolve the SEC’s lawsuit and work with other governmental authorities in advance of the launch of the TON network.”

Investors in the second round must sign a form approving the extension before Oct. 23. If the majority chooses not to sign, these investors can get back “approximately 77 percent” of their money.