In the latest trial between the SEC Vs. Telegram, the US Federal Court had ordered the SEC and the messaging platform Telegram to not to hold on the Telegram’s illegal Securities Offering issue.

During another hearing on February 19, at the U.S. District Court for the Southern District of New York, Judge Kevin Castel urged both the parties to consider the ‘economic realities’ of the $1.7 billion Gram token sales while recognizing that ‘disclaimers don't control’ how the court visions the asset.

Telegram vs. the Securities and Exchange Commission (SEC) Trial

The trial between the Telegram and the Securities and Exchange Commission (SEC) SEC began in October 2019. The SEC has banned the Telegram’s Gram Token which was scheduled to be launched in October 2019 as it considers it as security and insisted the Telegram follow the relevant regulations for securities. Whereas the Telegram has challenged the SEC's mandate to disclose the financial information of the company.

By selling the Gram tokens company raised $ 1.7 billion, which the Commission considers illegal since the gram token has not been registered at SEC as securities and investors are unaware of the financial status of the company.

Telegram, on the other hand, considers GRAM token as a cryptocurrency and not as security and thus it is certain that it has not violated the Reg. D securities’ standard. It accuses SEC that it has failed to ensure clear regulation and condemned it for disclosing the correspondence between Telegram representatives and its private investors publically.

Arguments from both parties heated up in today’s trial

Telegram’s lawyer once again reassured the court that the 36 validators have displayed an adequate interest in the Telegrams test net blockchain proving the interest of the crypto community.

The Securities and Exchange Commission (SEC) however was repeating the alleged legal violation about how the sale to the accredited investors has not been done according to Reg. D standards. SEC further accused the Telegram about violating the Federal Securities laws regarding its token sale.

The Attorney further accused that Telegram did not restrict the token resale in the secondary market by the initial gram purchasers.

SEC senior trial Attorney George Tenreiro said that they are submitting the next step in a public offering in violation of Section 5 of the Securities act.

Tenreiro argued that the Gram tokens were sold with no utility to investors who were disinterested in crypto outside of speculation. SEC advocate further pointed out that investors' memo returns in the double and triple digits can be considered as a clear raising of capital.

George Castel linked Telegram’s Gram sale to gold saying that the seller would not ask individuals if they were interested in gold before selling the precious metal on which investors often speculate.

Tenreiro said Telegram’s first round of Gram sales was locked for more than a year after the private sale of tokens. Telegram had not further provided reasonable justification for the lockup which provoked the initial purchasers to resale their presold tokens and create a secondary market.

He further accused the Telegram of being responsible for the ‘akin to underwriters ‘without registration.

Telegram lawyer Alexander Drylewski argued that the Howey test does not apply to digital-assets unless these assets are offered with the increase of value over time. This implies that when the blockchain launches, the Graham tokens will no longer be considered as securities.

He further added that Reg. D exemption should be given to the private investors and that the Telegram should not be held responsible for investor deeds which include the resale of the tokens and creation of a secondary market without the knowledge of the company.

The Verdict will be read before the launch of Ton Blockchain

Castel has reserved the judgment on the preliminary injunction and issued Telegram that the judgment will take place before the scheduled launch of the TON blockchain.

#Blockchain  #securities #HoweyTest  #cryptocurriencies  #SEC #Telegram #Gram #Token #RegD

Jayashree Ingle

CBW - External Analyst

INDIA