After deliberating over the status of Grams token, the virtual currency offered during the private ICO of messaging service Telegram, the Securities and Exchange Commission (SEC) on Friday decided to halt the offering. The ICO raised a total of $1.7 billion from private investors and never opened it to retail investors.
SEC Takes Action
The regulator filed an emergency action against Telegram on Friday and received a temporary restraining order against the company. According to the compliant, the company (Telegram Group Inc.) and Ton Issuer Inc. (a wholly-owned subsidiary of Telegram) started raising funds for the TON blockchain in January 2018.
TON or Telegram Open Network is a payments system designed for the Telegram app that allows users to send and receive money using distributed ledger technology. The company sold 2.9 billion Grams, the native token of the blockchain, to 171 investors in the private fundraise. According to the initial agreement with the investors, the blockchain will be launched by October 31, 2019 and initial investors will be able to sell their Grams in the open market.
However, the SEC considers Grams to be a security offering which went unregistered. Therefore, it stands in violation of the Securities Act of 1933.
Grams Can’t Flood the US Markets
Stephanie Avakian, the co-director of the Division of Enforcement at the SEC commented on the order, saying, “Our emergency action today is intended to prevent Telegram from flooding the US markets with digital tokens that we allege were unlawfully sold.”
She said that the company did not provide adequate information to the buyers about the operations of their business, its financial condition and the risks associated with the offering. Steven Peikin, her fellow co-director of the Division of Enforcement also criticized Telegram for trying to enjoy the benefits of public offering without complying with the responsibilities of disclosure that come with such offerings.