The US Securities and Exchange Commission has formally instructed the Telegram Group, the parent company of the Telegram-encrypted messaging service, to stop the sale of cryptocurrency Gram. The SEC says that the company, and its crypto-focused subsidiary TON Issuer Inc., failed to register an early sale of $ 1.7 billion of cryptocurrencies prior to its October 31 launch of the blockchain network. Because the SEC treats cryptocurrency as securities, the agency says Telegram is in violation of the Securities Act.
"Our emergency actions today are intended to prevent the Telegram from flooding the US markets with digital symbols that we claim were illegally sold," writes Stephanie Avakian, co-director of the SEC's Division of Enforcement, in a statement. "We allege that the defendants have failed to provide investors with information about Grams and Telegram's business operations, financial conditions, risk factors and management required by securities laws."
However, if Telegram does not distribute the "first batch" of symbols by October 31
Telegram has also been strangely silent on important details of the so-called TON network. The Blockchain platform is designed to be paired with a digital wallet that, like Facebook's struggling Libra project, aims to offer decentralized currency to anyone who has a smartphone.
But the company only formally acknowledged the network's existence earlier this month in a letter to investors about the official launch date, according to the crypto news website CoinDesk . Telegram has refused to disclose important details about the project since canceling an initial coin offering in May last year, in part due to regulatory concerns. The pre-sale of symbols, later reported to have generated $ 1.7 billion, raised red flags among regulators and security researchers concerned that the lack of oversight would make Telegram's network appealing to money launderers and drug dealers.
"We have repeatedly stated that issuers cannot evade federal securities laws simply by labeling their product as a cryptocurrency or digital symbol," writes Steven Peikin, co-director of the SEC & # 39; s Division of Enforcement, in a statement. "Telegram seeks to reap the benefits of a public offering without complying with the long-established disclosure tasks designed to protect the investing public."
The SEC filed today's appeal to the federal district court in Manhattan. It accuses Telegram and TON Issuer of violating two registration provisions in the Securities Act. The agency seeks "certain relief, as well as permanent injunctions, disgorgements with prejudice of interest and civil penalties."