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US SEC stops Telecom’s alleged $1.7 billion unregistered digital token

Oct 12, 2019, 8:31 am

The US Securities and Exchange Commission has halted the alleged unregistered, ongoing digital token offering by Telegram Group Inc. and it’s subsidiary TON Issuer Inc. The commission said on its October 11 blog report that the messaging service company has already raised more than $1.7 billion of investor funds in the U.S. and overseas.

The report states that the Telegram group along with its wholly-owned subsidiary started to raise the funds in January 2018 to finance the companies’ business, including the development of their own blockchain.

According to the report, Telegram sold approximately 2.9 billion digital tokens (Grams) at discounted prices to 171 initial purchasers worldwide, including more than 1 billion Grams to 39 U.S. purchasers. The company also promised to deliver the digital tokens to the initial purchasers upon the launch of its blockchain by October 31, 2019. After that, the purchasers and Telegram will be able to sell billions of Grams into U.S. markets, as it was claimed.

However, the company failed to fulfill its claims and sales of Grams and therefore they violated the registered provisions of the Securities Act of 1933.

In the report, Stephanie Avakian, the Co-Director of the SEC’s Division of Enforcement said:

We allege that the defendants have failed to provide investors with information regarding Grams and Telegram’s business operations, financial condition, risk factors, and management that the securities laws require. – Stephanie Avakian

The SEC filed the complaint on October 11 in federal district court in Manhattan. The complaint charged both Telegram and TON with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act while seeking certain emergency relief, permanent injunctions, disgorgement with prejudgment interest and civil penalties.

Steven Peikin, the Co-Director of the SEC’s Division of Enforcement stated:

We have repeatedly stated that issuers cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token. 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

Daphna A. Waxman, Morgan B. Ward Doran, and John O. Enright of the SEC’s Cyber Unit are investigating the case with the supervision of Carolyn Welshhans, the Acting Chief of the SEC’s Cyber Unit and Lara Shalov Mehraban, the Associate Regional Director of the New York Regional Office. The SEC’s litigation will be reportedly led by Jorge G. Tenreiro and Kevin McGrath.

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