gram - Pwim.Net

Telegram Goes Public with Involvement in TON Blockchain

Telegram finally acknowledged its involvement in the Telegram Open Network (TON) and Gram. In Telegram’s terms of service on its official website, Telegram mentions the govern of use of the Grams Wallet as well as its involvement with the TON blockchain network.

The terms of service mentions:

“We have no control over the TON Blockchain network and, therefore, cannot ensure that any transaction details that you submit via the Services will be validated and confirmed on the TON Blockchain.”

Telegram stated under ‘use of services’ that it will not keep either personal information of its users nor their public and private keys:

“You are solely responsible for managing and maintaining the security of your Credentials. If you lose your Credentials, we do not have the ability to recover your Credentials or assist you in retrieving your Credentials, and you may not be able to access your Grams. Please note that we do not collect any personal information about you through your use of the Services.”

Although the messaging app has raised $1.7 billion in 2018 to develop the TON blockchain and its associated Gram token, this is the first time Telegram has publicly announced its involvement in TON. The company’s CEO, Pavel Durov, and other company representatives have never announced the project previously.

Earlier this month, Telegram informed investors that the blockchain network would launch in late October, adding that the testing state has been successful.

Image via Shutterstock

Telegram to Release Financial Statements to the SEC in Gram Token ICO Case

The United States Securities Exchange Commission (SEC) has asked Telegram to release its financial statements, which includes bank records, as the regulator believes will prove the misconduct in the $1.7 billion offering of Gram tokens.

According to the filing on Jan. 13, by the international privacy laws and the new information with the court of the Southern District of New York (SDNY), Telegram has been given until Feb. 26 to make the bank records available; the court has denied SEC of this record in a previous ruling based on a privacy concern.

The ruling will allow Telegram to release a censored copy and provide it to the court, this would be done in accordance with foreign privacy regulations. According to the letter sent from the attorney for the defense to the court, Telegram will provide a redacted record on Jan. 15 before submitting them to the public record while a full copy would be made available to the SEC. All eyes will be on the next move to be made by the SEC, as Telegram’s attorney has agreed to make available these records available as it would serve as a bellwether of what they do or do not find in the new documents.

Philip Moustakis, an attorney with Seward and Kissel and formerly the senior counsel at the SEC said that they will be alerted to pick up any evidence of Telegram’s failure to exercise reasonable care to ensure that the purchasers were not acting as underwriters.

This case between SEC and Telegram started on Oct. 11, 2019, the SEC had filed an emergency action as it demanded a cease-and-desist in Telegram’s ICO. The SEC had referred to the sale of the Gram tokens as securities offerings that are not registered, meanwhile, Telegram had argued that saying that it had met all the requirements to register as such an offering under Regulation D.

Image via Shutterstock

SEC Fights Telegram on Gram Token Sale at US Court Battle

The cryptocurrency and blockchain community have been closely watching the court case between the United States Securities and Exchange Commission and Telegram over the legality of the latter’s $1.7 billion token offering.

Judge P. Kevin Castel of the US District Court for the Southern District of New York started the hearing by stating that both the SEC and Telegram should “consider the economic realities” of the $1.7 billion token sale. The judge added that the disclaimers do not control how the court views the digital asset.

When Pastel questioned the utility of the tokens sold in the first round, Telegram’s attorney assured the court that the testnet blockchain had sufficient interest in the blockchain from the “decentralized community.”

The suit was brought against Telegram last October from the SEC, as the regulator believes that Telegram violated the Securities Act of 1933 with its token offering by not adhering to the registration requirements.

Since the SEC considers tokens to be securities and the Securities Act of 1933 requires all securities to be registered with the SEC. Telegram and TON failed to register their sale of Gram tokens, and the SEC considers the sale to be “unlawful.” The complaint reads, “Telegram committed to delivering Grams to the Initial Purchasers in conjunction with the launch of the TON Blockchain by no later than Oct. 31, 2019, and it plans to sell millions of additional Grams at the same time.”

SEC senior trial attorney Jorge Tenreiro argued that Gram tokens were sold to investors without any utility. The SEC claims that the transaction was a “straightforward capital raise.”

Although Judge Castel referred to Telegram’s Gram token sale to gold, stating that the seller of the precious metal would not ask the investor if they were interested in the gold before the transaction, leaving some investors with doubts.

Telegram’s lawyer, Alexander Drylewski said that the SEC’s Howey Test, a test designed to categorize securities does not apply to digital assets that are offered with a promise of managerial oversight, that will increase their value over time. The lawyer argued that when TON blockchain launches, Grams will not be securities.

Castel concluded judgment on the preliminary injunction, and assured Telegram’s lawyer there would be a judgment in the case before April 30, when the TON blockchain is expected to be launched.

Image via Shutterstock

Chelsea Football Club Owner Abramovich Confirmed as Investor in Telegram's 2018 ICO

The US Securities and Exchange Commission’s (SEC) investigation into Telegram’s $1.7 billion initial coin offering (ICO) in 2018 has revealed that some very big names took part in the unregistered offering.

According to a court document, one of the investors was Russian oligarch and Chelsea owner, Roman Abramovich who bought tokens (grams) via an offshore fund.

The Russian tycoon’s name, along with the amount he invested, was recorded in the document by Stephen Mckeon, a professor at the University of Oregon who was hired by Telegram to write a report on the Telegram Open Network (TON) project.

Abramovich appeared to get involved in the second round known as Stage A in March 2018. Telegram raised another $850 million on top of the same amount raised in the first round.

The SEC and Telegram

Although reports did surface in 2018 suggesting that Abramovich had invested in the first round, Telegram kept the names of the ICO investors secret, and the investors were additionally prohibited from talking publicly about their participation.

It was only when a court filing initiated by the United States Securities and Exchange Commission (SEC) compelled Telegram to reveal bank records and other transactional documents showing how the raised funds have been used in the last two years that the blockchain project.

The filing stated: “Plaintiff respectfully moves to compel Defendants to answer questions and provide documents regarding the amounts, sources, and use of funds raised from investors in connection with the unregistered sale of securities at issue in this case, Defendants are now refusing to disclose the bank records concerning how they have spent the $1.7 billion they raised from investors in the past two years and to answer questions about the disposition of investor funds.”

It was in the Telegram funded report by Mckeon, that the SEC discovered that the TON ICO received $10 million from Norma Investments Limited, a fund based in the British Virgin Islands which the regulator has identified as being controlled by Abramovich.

Abramovich is best known as the owner of Premier League contenders Chelsea Football Club and is alleged to have intimidated his former business partner into selling him the controlling share of their joint oil venture.

Ruling Before TON Mainnet Launch

This investment row between the United States SEC and Telegram is based on the premise that Telegram did not register their Gram tokens as securities.

The TON network was scheduled to go live and launch last October, but the SEC filed a lawsuit just prior tot he deadline. The suit was highly contested by Telegram who asked the US courts to overrule the regulator’s action, they were denied. After the months of exchanging legal papers, the sides met in court on Feb. 19.

The presiding judge has promised to rule on the case before the new deadline for the TON mainnet launch of April 30.

Image via Shutterstock

Telegram Prohibited from Issuing Gram Tokens as US Court Grants SEC's Injunction

A United States District Court has sided with the US Securities and Exchange Commission (SEC) granting an injunction against Telegram to to temporarily prevent the company from issuing its Gram tokens.

Gram is a security according to Howey Test

The cryptocurrency and blockchain community have been closely watching the court case between the SEC and Telegram over the legal status of the latter’s $1.7 billion token offerings. The SEC has maintained throughout that the tokens sold were unregistered securities and today a US district court has sided with the regulator.

In a March 24 filing, the Court granted the SEC’s motion for a preliminary injunction to halt the sale of Gram tokens.

As per the Court’s filing, “The Court finds that the SEC has shown a substantial likelihood of success in proving that the contracts and understandings at issue, including the sale of 2.9 billion Grams to 175 purchasers in exchange for $1.7 billion, are part of a larger scheme to distribute those Grams into a secondary public market, which would be supported by Telegram’s ongoing efforts. Considering the economic realities under the Howey test, the Court finds that, in the context of that scheme, the resale of Grams into the secondary public market would be an integral part of the sale of securities without a required registration statement.”

The story continues

The saga began when a suit was brought against Telegram last October from the SEC, as the regulator believes that Telegram violated the Securities Act with its 2018 token offering by not adhering to the registration requirements.

According to the SEC, citing the Securities Act of 1933, Telegram and TON failed to register their sale of Gram tokens, and the SEC considers the sale to be “unlawful.” The SEC’s complaint reads, “Telegram committed to delivering Grams to the Initial Purchasers in conjunction with the launch of the TON Blockchain by no later than Oct. 31, 2019, and it plans to sell millions of additional Grams at the same time.”

Telegram has maintained its stance that the ICO was authorized to sell to accredited investors since the company had filed a Form D 506(c) Notice of Exempt Offering of Securities prior to the first round of its offering. The court has disqualified this argument in the recent injunction filing, which read, “Telegram’s sale of Grams to the Initial purchasers, who will, function as statutory underwriters, is the first step in an ongoing public distribution of securities and, as such, Telegram cannot receive the benefit of an exemption from the registration requirement under either section 4(a) of Rule 506 (c).”

The SEC’s Howey Test

As investment continues to increase in the cryptocurrency space has grown, the SEC has become increasingly interested in defining cryptocurrencies.

If the SEC is able to determine that a particular cryptocurrency token is classified as a security, that brings about a host of implications for that cryptocurrency. Effectively, it means the SEC can determine whether or not the token can be sold to US investors legally or not; it also compels US investors to register their token holdings with the SEC.

When applying the Howey Test, the question to ask, in this case, is whether or not Gram’s investors were participating in a speculative enterprise, and if so, if the profits those investors believe they will receive are entirely dependent upon the work of Telegram.

On Feb. 18, Telegram’s lawyer, Alexander Drylewski had criticized the application of the SEC’s Howey Test, citing that a test designed to categorize securities does not apply to digital assets that are offered with a promise of managerial oversight, that will increase their value over time. The lawyer argued that when TON blockchain launches, Grams will not be securities but commodities.

The injunction filing also indirectly countered Drylewski’s stance—rejecting Telegram’s argument that Gram should not fall under the SEC’s jurisdiction as it would soon become a commodity, the Court stated, “The Court rejects Telegram’s characterization of the purported security, in this case. While helpful as a shorthand reference, the security, in this case, is not simply the Gram, which is little more than alphanumeric cryptographic sequence. Howey refers to an investment contract…that consists of the full sets of contracts, expectations, and understandings centered on the sales and distribution of the Gram. Howey requires and examination of the entirety of the parties’ understanding and expectations.”

TON Developers Threaten to Go Rogue and Launch Network as Telegram Battles SEC Lawsuit

While the US Securities and Exchange Commission (SEC) may have temporarily succeeded in stopping the launch of Telegram’s TON network, can they really stop open-source technology?

On March 24, the SEC won an important decision in their court case against Telegram over the legal status of the latter’s $1.7 billion Gram token offering in 2018. The SEC has maintained throughout that the tokens sold were unregistered securities and on March 25 the US federal court granted the regulator an injuction to halt the distribution of Grams as the legal battle continues.

As the picture is starting to look very grim for the launch of the Telegram Open Network (TON), those in the TON Community Foundation are now discussing alternatives: notably their ability to launch with or without the messaging platform’s further participation and without regulator approval.

The Amicus Brief

The TON Community Foundation (TCF) is a non-profit association of TON ecosystem participants on a mission to enable the development of TON as a decentralized system through collaboration and cooperation.

The Foundation was formed amid the escalating legal tensions between the SEC and Telegram. On Feb 14, TCF filed an amicus brief which was in defense of the messaging giant.

The brief focused on the arguments made by Professor Maurice Herlihy of Brown University, in his report on TON for the United States Securities and Exchange Commission. Herlihy had concluded that the network was lacking critical components for a successful launch and was not secure. He also highlighted the lack of uses for the Gram token, from the report, “the TON public documents describe a suite of services that will eventually be purchasable by Gram holders. Today, however, few if any of these services exist.”

TCF insisted in the brief that the TON blockchain is fully operational, has “state-of-the-art prelaunch security” and a wide range of services on offer.

Arguing that the components Herlihy had criticized were not necessary, the Foundation stated that TON, in its current state, could be launched as a mainnet in a “matter of seconds.”

Will TCF Launch TON without Telegram?

Telegram has been fighting the SEC’s allegations that its 2018 token sale facilitated the sale of unregistered securities while fronting as a decentralized system, like bitcoin and ethereum since Oct 2019.

As the US Courts appear to be siding with regulators, granting a temporary halt on Gram distribution; the TON Community Foundation’s founder, Fedor Skuratov told Coindesk on March 25, that the community is seriously considering contingency options like launching the network without Telegram.

According to the article, Skuratov said “Strictly speaking, no additional measures are required to launch TON by the community, except for a consensus within the community. But in order to get recognized, we will need to come to an agreement with investors (at least, with a majority of them).”

Skuratov highlighted that all the code necessary to launch TON is available online as it was published as open-source by Telegram. He explained that they would merely need to create the genesis block and could run the network on a minimum of 13 validators.

Judge Denies Telegram's Appeal to Issue Grams to Non-US Entities, Says it's Too Late to Question SEC Jurisdiction

US Federal Judge P. Kevin Castel has denied Telegram’s request to issue its Gram tokens to overseas investors.

Telegram had filed an appeal to last week’s ruling by a United Stated federal court in favour of the US Securities and Exchange Commission (SEC) which is prohibiting the issuance of Gram tokens for the time being.

In the most recent turn in Telegram’s six-month court battle with the U.S. Securities and Exchange Commission (SEC) over the legal status of the former’s $1.7 billion Gram token offering in 2018, the US courts have ruled that the injunction barring Telegram from issuing its Gram tokens is applicable to all potential investors both in the United State and overseas.

Courts Continue to Side with SEC

In Telegram’s notice of appeal with the Court of Appeals for the Second Circuit, the company cited the SEC’s lack of jurisdiction with overseas investors and even made the suggestion that it would implement safe-guards to protect against “non-US Private Placement purchasers reselling Grams to US purchasers in the future.”

Judge Castel argued that Telegram had not provided enough evidence that it could implement these types of safeguards and cited that, “the TON Blockchain was designed and is intended to grant anonymity to those who purchase or sell Grams,” meaning that the proposed safeguard would be unenforceable in the real-world.

The order also points out that the question of the SEC’s jurisdiction has not been previously raised by Telegram, and said at this point it is too late to consider it.

Will TCF Launch TON without Telegram?

As the picture is starting to look very grim for the launch of the Telegram Open Network (TON), some in the TON Community Foundation came forward with contingency alternatives on March 26: notably their ability to launch with or without the messaging platform’s further participation and without regulator approval.

As the US Courts appear to be siding with regulators, granting a temporary halt on Gram distribution; the TON Community Foundation’s founder, Fedor Skuratov said that the community is seriously considering options like launching the network without Telegram.

Skuratov said “Strictly speaking, no additional measures are required to launch TON by the community, except for a consensus within the community. But in order to get recognized, we will need to come to an agreement with investors (at least, with a majority of them).”

While the US Securities and Exchange Commission may have temporarily succeeded in stopping the launch of Telegram’s TON network, can they really stop open-source technology?

Images via Shutterstock