Telegram has asked a court to clarify what exactly it must do to comply with the U.S. Securities and Exchange Commission (SEC) order banning the issuance of its gram tokens. The SEC opposed the move.
Last week, U.S. District Court Judge Kevin Castel in New York issued a preliminary injunction in the case, prohibiting the issuance and distribution of the tokens for the messaging app company’s blockchain TON.
The judge decided the SEC “has shown a substantial likelihood of success in proving” Telegram’s private placement of tokens was an unregistered securities sale.
However, Telegram is still waiting for a more detailed order prescribing what exactly it can and cannot do as it prepares to launch its blockchain and investors await their paid-for gram tokens.
In a letter to Judge Castel on Friday, the company’s lawyer, Alexander Drylewsky, asked the court to clarify if the ban applies to the non-U.S. investors in TON. According to the court documents, about a quarter ($424.5 million) of the $1.7 billion Telegram raised in two rounds in February and March 2018 came from the U.S. investors. The rest, Telegram argues, are not subject to U.S. securities laws.
The company said it’s willing to take steps to fence off American investors while still fulfilling its obligations for others. “Should the Court require, Defendants will implement safeguards to protect against non-U.S. Private Placement purchasers reselling Grams to U.S. purchasers in the future,” the letter reads.
Such measures, it adds, could include a condition that non-U.S. investors may can only receive their grams if they are not going to resell them in the U.S., and that Telegram could “[configure] the TON digital wallet to preclude U.S.-based addresses.”
U.S. securities law only covers transactions in securities listed on domestic exchanges and domestic transactions in other securities, the company argues, so Telegram still has “irrevocable liability” for its investors in other nations.
Later on Monday, the SEC asked the court to reject Telegram’s request, saying it is trying “to improperly narrow” the scope of the preliminary injunction, which “unambiguously, and properly, applies to Telegram’s delivery of Grams to ‘any person or entity.'”
“Telegram has sold unrestricted Grams to conduits all over the world, some
of whom have already resold their interests – consistent with Telegram’s plan to ensure the widest distribution of Grams – including to United States investors,” the SEC wrote.
Telegram has already notified the court it’s going to appeal the preliminary injunction. At the same time, the TON Community Foundation, a group uniting some of the TON investors and developers outside of Telegram, announced it has been discussing a launch of TON without Telegram’s participation.
UPDATE (March 30, 17:55 UTC): This article has been update to add the SEC’s response to Telegram’s letter to the judge.