FinTelegram has reported several times about the SEC’s lawsuit against Telegram Group Inc. regarding the operation of its Telegram Open Network (TON) blockchain and the Gram token based on it. The messenger service Telegram, founded by the Russian Pavel Durov, had raised around $1.7 billion from predominantly Russian investors early 2018 amidst the then crypto-hype with the hundreds of Initial Coin Offerings (ICO). In return, the institutional investors were to receive 2.9 billion Grams upon the launch of TON. Interestingly, the Telegram fundraising was not exactly an ICO, i.e. not a public offering, but a private placement in two tranches. Nevertheless, the SEC intervened and finally crashed the ambitious “new money” project.
The SEC Complaint
The SEC had qualified the Gram token as security and the private placement as an unregistered and therefore illegal issuance of securities. For the SEC, the fundraising of Telegram was in its very essence a public offering, a press release informed the public.
Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.Steven Peikin, Co-Director of the SEC’s Division of Enforcement
In October 2019, the SEC therefore filed a lawsuit and applied to the competent court for an interim injunction in order to stop the TON project de facto and prevent the issue of Gram. The SEC demanded that the court order that the funds be repaid to the investors.
The Preliminary Injunction
The US judge P. Kevin Castel shared the SEC’s assessment that the Gram would be a security and granted the requested preliminary injunction on 24 March 2020. The judge ordered that the money be repaid to the investors by April 30, 2020. Telegram’s lawyers initially announced that they would appeal. However, the chances of an appeal were probably considered low.
RIP TON and Gram
On May 12, 2020, Telegram founder Pavel Durov surprisingly announced the sudden dead of TON and its Gram in a blog post. In his statement, Durov accused the US court of an incomprehensible decision that would also violate the sovereign rights of other states and their citizens. Durov implicitly accuses the court of having political motives to maintain the global dominance of the US in the financial markets.
Perhaps even more paradoxically, the US court declared that Grams couldn’t be distributed not only in the United States, but globally. Why? Because, it said, a US citizen might find some way of accessing the TON platform after it launched. So, to prevent this, Grams shouldn’t be allowed to be distributed anywhere in the world – even if every other country on the planet seemed to be perfectly fine with TON. This court decision implies that other countries don’t have the sovereignty to decide what is good and what is bad for their own citizens.Pavel Durov, blog post published on May 12, 2020
The Russian press hurries to support Durov. The RT qualifies the US ruling as an attempt by the Americans to maintain the global dominance of the dollar. Durov himself purports that with this court decision the US would put de facto an end to the process of decentralization made possible by the blockchains. The Americans would thus stay in control of the global financial industry. Therefore Durov would not see any sense in continuing TON and has announced the suspension.
What about the investors?
Just a few weeks ago, Telegram informed its investors that they could receive 72% of their funds back immediately, or 110% back in a year, once TON had launched. Now, with TON announced dead things are completely different.
In his May 12-statement Durov did not say whether, and if so how, TON investors would get their money back. Since the investors are now not getting grams for their $1.7 billion they certainly want their money back. And just as surely this money is no longer available since a considerable part of it has already been spent on the TON development.
From Telegram, you hear that investors may get shares in Telegram. The company is owned and controlled by its founder and CEO, Pavel Durov. With some 400 million monthly users, the company’s value could possibly exceed the aggregate amount of its potential debt several times.
The Battle for monetary dominance
In view of the resistance of the political US establishment against Facebook‘s plans with its own cryptocurrency Libra, there seems to be a real battle for the future money of the dawning era of cybersociety. Despite the resistance, Facebook has announced that it intends to stick to its Libra plans (read this article in the New York Times). The Libra Association, based in Switzerland, is to manage the new money and organize it globally. Pavel Durov‘s competitor Telegram, which was assigned to the Russians, is out of the race. This is good news for Mark Zuckerberg.
From this point of view, the US ruling against Telegram could indeed have a political dimension, couldn’t it?