New York Court Enacts Preliminary Injunction Against Telegram Author: Ali Raza Last Updated: 25 March 2020 The US Securities and Exchange Commission, or SEC, has managed to gain the preliminary injunction they had sought against Telegram Group Inc. and TON Issuer Inc. This will grind Telegram’s planned offering of “Grams” to a halt in terms of offering it to the public. Officially Barring Distribution Of Grams On the 24th of March, 2020, New York Southern District Court Judge, P. Kevin Castel, has issued out an Opinion & Order that granted the motion of the SEC for a preliminary injunction against the defendants. The SEC had taken measures to try and prohibit Telegram from engaging in its plan to make a public offering of its digital asset, the Grams. This is due to the fact that the SEC is convinced that the Grams Telegram plans on selling, is, in fact, unregistered security. A Case Of Two Years This matter has been going on for almost two years now, having started all the way back in early 2018. Back then, Telegram had 175 investors, either high net-worth individuals or sophisticated entities, pay a collective $1.7 billion in funding in exchange for a promise to issue out 2.9 billion in Grams to them. For reasons known only to Telegram, the company opted to consider these Grams “lawful private placements of securities,” which are exempt from registration requirements. As Telegram tells it, only the agreements with the individual purchasers are securities. As it stands now, however, Grams will be barred from delivery to these purchasers until Telegram launches its blockchain network, the Telegram Open Network, or TON. Telegram boldly claimed that the subsequent resale of grams by these 175 purchasers through a secondary market hosted on the TON blockchain, is once again not an offering of securities. In fact, Telegram considers these transactions to be wholly-unrelated to anything. Telegram Losing The Gambit As one would imagine, the SEC has a different view on the matter. They consider the 175 purchasers as “underwriters,” who would engage in the distribution of Grams in the public market as soon as Telegram gives it to them. These participants would, in turn, be deprived of essential information that a registration statement would reveal in regards to the cryptocurrency’s behavior. The Court, in turn, has concluded that the resale of Grams within a secondary public market would itself be an integral facet of securities sale. Thus, it requires the asset to be registered as a security and needs a registration statement to do it.