Telegram demanded that the SEC lawsuit against its cryptocurrency be dismissed

Telegram requires a US court to dismiss the claim of the Securities and Exchange Commission (SEC), which has secured a court ban on the issuance and distribution of the Gram cryptocurrency, follows from a document published on the Courtlistener website. Investors who believed in the new project of Pavel Durov invested $1.7 billion in Gram.

Details. The company's main argument is that Telegram did not violate US securities laws, since the new product is not a security. "The Gram does not yet exist, but if one ever does, it will be a currency and/or a commodity, not a security subject to federal securities laws," the document explains. Durov's company admitted that it did not apply for the registration of cybercurrency, but only because it was not required by law.

Telegram not only demands to dismiss the SEC lawsuit against the launch of Gram, but also to pay compensation, which the court considers fair. Durov's company believes that the SEC voluntaristically used a "power approach" to regulation in a new area of economic relations, did not provide clear instructions and did not notify the company of its position in a timely manner.

What's next. A district court in New York is due to hear the SEC's lawsuit against Telegram in February 2020. If Telegram manages to challenge the SEC’s position, it will be an unprecedented success: the position of the regulators slows down the launch of Facebook’s incomparably more powerful Libra cryptocurrency. The SEC also tends to define Libra as a security (more precisely, a type of open investment fund, ETF), and the US Congress sees it as a threat to the dollar.

There is no established practice of settling SEC claims against cryptocurrency issuers. But in October, the regulator reached a pre-trial agreement with Block.One over a $4.1 billion unregistered ICO lawsuit in 2017. Block.One agreed to pay a fine of $24 million. The SEC took into account that the company began selling tokens even before the adoption of the ban on unregistered placements, and the placed tokens were already out of circulation. It is difficult to judge what the court's decision will be in the case of Gram.

Context. Telegram planned to launch the TON blockchain platform and the Gram cryptocurrency before October 31, 2019. in early October The Bell reported that the Telegram team sent a letter to investors on October 2 stating that the TON blockchain would be launched on time. However, the launch had to be postponed until at least spring 2020 due to claims from the regulator.

The positions of the parties are as follows:

The lawsuit by the SEC filed in Manhattan District Court alleges that two companies allegedly connected to the Durov brothers' blockchain illegally sold tokens (we are talking about Telegram Group Inc. and its 100% subsidiary TON Issuer Inc.) . The American regulator believes that Durov sold securities to investors, but did not file a registration application and thereby violated the US securities law.
The SEC believes that both investment contracts for the purchase of Gram cryptocurrency and Gram itself are securities, not currencies, simply because they cannot buy anything. The lawsuit states that there is no TON ecosystem within which goods or services would be sold for Gram. And even if such an ecosystem appears any day, for example, in the form of TON blockchain services, by the time of launch and in the foreseeable future, it will not have services worth billions of dollars.
TON representatives offered contracts for the purchase of Gram as securities (as they are called in the agreement for investors, which The Bell described here ), warning investors of possible risks. In a letter to investors , which they received a day after the regulator banned, it was said that the team TON spent 18 months trying to get clarification from the SEC about what the commission thinks about the project. “We were surprised and disappointed that the SEC chose to go to court in these circumstances, and we do not agree with its legal position,” it says in the same place.