The SEC obtained a court approval
of its settlement with Telegram Group, Inc. and its subsidiary TON Issuer Inc. ("Telegram") on charges that ICO of the token Gram violated the U.S. securities laws. Under the settlement, Telegram agreed to return more than $1.2 billion to investors and pay a whooping amount of civil penalty equal to $18.5 million.
In 2018, Telegram had an ICO raising funds to finance its operations and develop its own blockchain. The tokens were not available to everyone but rather to a few sophisticated investors. In its complaint, the SEC alleged that Telegram sold approximately 2.9 billion Gram tokens to 171 investors worldwide in an effort to raise capital to finance its business. This turned out to be the largest ICO to this date. However, the sale was conducted without necessary disclosures and registration, in violation of the U.S. securities law.
One of the biggest concerns of the SEC was unlawful distribution of Grams to the secondary market. "Our emergency action protected retail investors from Telegram's attempt to flood the markets with securities sold in an unregistered offering without providing full disclosures concerning their project," said Lara Shalov Mehraban, Associate Regional Director of the New York Regional Office.
The complaint was filed in the U.S. District Court for the Southern District of New York. Telegram attempted to fight the SEC arguing that the sale of Grams did not fall under the U.S. securities laws and regulations.
The interesting fact about this case was that the U.S. Commodity Futures Trading Commission (CFTC) had provided its own opinion letter reminding everyone that it defined digital currencies as commodities. However, it stated that commodities and securities are not always mutually exclusive. The CFTC also refrained from expressing any view on application of the U.S. securities law to Grams.
The Court ruled in favor of the SEC and issued a preliminary injunction blocking Telegram from distributing its Gram tokens to the purchasers. Also, it denied the company's request to exclude non-U.S. token holders from the Order.
Telegram appealed but eventually agreed to a settlement with the SEC without admitting or denying the SEC's allegations. As a result of the settlement, Telegram was ordered to disgorge $1,224,000,000 of gains from the sale of Grams and pay a civil penalty of $18,500,000 making it the largest amount in token related enforcement actions brought by the SEC.