Gram Token is Securities/Utility Token?
Telegram is quickly becoming one of the most popular messaging and communications platforms available, recently surpassing a membership of over two hundred million plus users worldwide. In January to March 2018, Telegram raised approximately $1.7 billion from initial offering of approximately 2.9 billion Grams to 171 Initial Purchaser of Tokens.
U.S. Securities and Exchange Commission (SEC) filed an emergency action to halt the launch of Telegram’s blockchain, the Telegram Open Network (TON), and the distribution of the platforms token, Gram. According to the SEC, the Telegram Group Inc. and its wholly owned subsidiary TON Issuer Inc. broke the law by not filing a securities registration statement for the token of Gram.
Before we go any further to come on conclusion whether the Gram Token is security Token or not, it is important to know what the Howey test is?
In 1946, the Supreme Court handled a case, it was SEC vs Howey which would lay down the foundation for the, now infamous Howey Test. The case was about establishing a test of whether a particular arrangement/transaction involves an investment contract or not. If it is, then it will be subject to the securities registration requirement under federal security regulations.
The transaction will be called an investment if it satisfies the following criteria:
· It is an investment of money.
· The investment is in a common enterprise.
· There is an expectation of profit from the work of the promoters or the third party.
Ultimately, it can be said “That Gram is a security” – because of the application of the Howey Test, the investors expect to profit from the development of TON integration with Messenger, and implementation of the new TON Blockchain. The objective of trading with Gram would be to make a secondary profit for investors.
Additionally, SEC presented a document as evidence which states that “These documents undermine Telegram’s claimed affirmative defence that the Offering was exempt under Regulation D. First, Telegram either raised more than the $1.7 billion for which it claimed an exemption, or it did not raise $1.7 billion as of March 29, 2018 and the later funds may have been raised through underwriters”. It shows that Da Vinci Capital and Gem Limited handled the sale of Telegram’s tokens to three other entities for profits in excess of $10 million. The firms involved with the purchase of the tokens are ITI Funds, Goliat Solutions and Space Investments Limited. The document dates the transactions to July 2018, several months after the conclusion of the ICO issued.
It has been stated in the TON whitepapers that it would establish a procedure for the TON Foundation to repurchase Grams directly if the market price dropped the below half the reference price.
On the other side, if the token doesn’t qualify according to the Howey test, then it classifies as utility tokens. These tokens simply provide users with a product and/or service. Think of them like gateway tokens, sale of product and services at discount prices. Gram token doesn’t characterise with any of these and also qualify under the Howey Test.