On Nov. 12, messaging app company Telegram filed a new motion to get the Southern District of New York’s District Court to drop a lawsuit filed by the U.S Securities and Exchange Commission (SEC) against the company for allegedly selling unregistered securities.
Telegram filed an answer to complaint yesterday, in which it denies the accusations made by the SEC. According to Telegram’s Tuesday filing, the claims made by the SEC do not have merit as the Gram tokens offering was executed privately and under lawful exemptions to registration by federal securities laws. Additionally, “Grams will not be securities when they are created at the time of the launch of the TON Blockchain,” therefore, they do not have to be registered under the federal securities laws. The launch of the TON blockchain was initially scheduled for Oct. 31, but was postponed to Apr. 30, 2020 amid the SEC lawsuit.
In Telegram’s filing, it is stressed that Gram tokens have not been issued yet and that when they are eventually, “they will constitute a currency and/or commodity,” which is why the company didn’t file for a registration statement with the SEC.
On Oct. 11, the U.S. SEC issued a press release stating that the offering of the network’s Gram tokens, sold from January to March 2018, violated the registration provisions of federal securities laws. Under that statement, the SEC filed an emergency action, obtaining a temporary restraining order against the company disabling it from pursuing any actions to deliver or sell Gram.
According to the release, the Gram token is considered a security and the Telegram Group Inc. and its wholly-owned subsidiary TON Issuer Inc. failed to file a registration statement for the tokens under the Securities Act of 1933. On Oct. 16, Telegram filed a motion to dismiss the SEC’s emergency action against the company arguing, among other claims, that Gram tokens are a currency or commodity, and that the company didn’t conduct an ICO for the tokens’ distribution, as it was being accused of by the SEC. However, this was met with a new filing from the SEC asking the court to either grant a preliminary injunction or extend the previous restraining order, as the agency insisted that Gram tokens were securities.
As the company mentioned before and restated in its latest filing, it attempted to engage with the SEC regarding its Gram tokens several times starting in February 2018 to no avail. In Telegram’s new filing, the company stated that they voluntarily engaged with the agency to obtain guidance, but the SEC “failed to provide clear guidance and fair notice of its views as to what conduct constitutes a violation of the federal securities laws,” acting in “direct contradiction to its public statements inviting developers of digital assets to engage with the SEC to work out securities issues in this new area of the law.”
Furthermore, Telegram’s motion states that prior to the SEC’s lawsuit, the agency never made any comments regarding Telegram being “engaged in an ongoing violation of the federal securities laws,” it never contacted the company to ask for a delay on the launch of the TON blockchain while it addressed any concerns, and never informed the company that “it would seek injunctive relief to stop the launch,” thus claiming that the company “acting in good faith would not have been able to identify...the standards with which the agency expects parties to conform.”
In mid-October, Telegram sent a letter to its investors, which they voted in favour of postponing the launch of the TON blockchain to Apr. 30, 2020, to prepare to fight the SEC in court in a hearing that was initially scheduled for Oct. 24 but was later postponed to Feb. 18-19, 2020.