The United States district court issued a decision ordering Telegram to halt from issuing its cryptocurrency tokens, planned to be launched next month.
The judge order granted the request by the Securities and Exchange Commission’s (SEC), in what it considers issuing the new Gram cryptocurrency to be an unregistered offering of securities.
The SEC sued the messaging platform last autumn, claiming that Telegram violated the federal law when selling nearly $2 billion worth token back in 2018.
In a preliminary injunction from yesterday, the Court said that SEC has a plausible accusation of Telegram selling unregistered securities:
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.
The conflict between Telegram and security regulator
Hostility between messaging giant and SEC sparked last October when regulator accused the Telegram selling its Gram tokens as unregistered security under the Howey Test.
The Howey Test is a test created by the US Supreme Court in 1946 for determining whether certain transactions qualify as “investment contracts” if a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.
In 2018, Telegram’s initial coin offering (ICO) raised $1.7 billion when selling 2.9 billion Gram tokens mainly for the US investors. The security regulator, however, complained that the cloud-based instant messaging giant did not register its initial token offer or sale. The SEC immediately took an emergency action that was intended to prevent from flooding the US markets with tokens that were sold supposedly unlawfully.
Telegram countered SEC’s decision saying that even before the first token sale it had filed a Form D 506(c) Notice of Exempt Offering of Securities. The company claimed to have the right to sell its tokens to accredited investors.