US court recognizes TON tokens as securities

US court recognizes TON tokens as securities

The federal court in the USA sided with the American regulator that claims that Telegram sold securities under the guise of tokens during the ICO, and extended the temporary ban on transferring Grams to investors.

The federal judge at the Southern District Court in New York supported the US Securities and Exchange Commission (SEC) in accusing Telegram of selling securities under the guise of tokens. The court ordered a temporary ban on the transfer of Gram tokens to investors participating in the ICO, during which Telegram raised $1.7 billion. According to the court ruling, Judge Kevin Castel noted that “SEC has shown a substantial likelihood of success in proving that the Gram Purchase Agreements, Telegram’s implied undertakings, and its understandings with the Initial Purchasers, including the intended and expected resale of Grams into a public market, amount to the distribution of securities, thereby requiring compliance with section 5. Telegram has failed to establish an exemption to the registration requirement under either section 4(a)(2) or Rule 506(c).”

In 2018, Telegram raised $1.7 billion during the private sale selling purchase agreements to transfer 2.9 billion Gram tokens to 175 investors, some of which subsequently resold their portfolios to third parties.

“Telegram entered into agreements and understandings with the Initial Purchasers who provided upfront capital in exchange for the future delivery of a discount asset, Grams, which, upon receipt (and the expiration of the lockup periods for Round One Purchasers), would be resold in a public market with the expectation that the Initial purchasers would earn a profit.”

Telegram argued that the investment agreement complies with the law provided for private placements of securities.

“The Court also finds that the delivery of Grams to the Initial Purchasers, who would resell them into the public market, represents a near certain risk of a future harm, namely the completion of a public distribution of a security without a registration statement. An injunction, prohibiting the delivery of Grams to the Initial Purchasers and thereby preventing the culmination of this ongoing violation, is appropriate and will be granted.”

In October 2019, SEC announced that the sale of TON purchase agreements was illegal because Gram is a security in accordance with US security law, and the sale of securities must be registered and approved by the US regulator. Telegram agreed to postpone the launch of the network until the end of the trial. Currently the launch of TON is scheduled for the end of April 2020, but, given the latest decision of the American court, it can be postponed indefinitely or canceled at all.