The Securities and Exchange Commission (SEC) has issued a restraining order to Telegraph to stop the sale of its crypto token.
SEC has stated that the crypto subsidiary of Telegram did not report the $1.7 billion sales of its crypto tokens before launching its blockchain network on October 31st.
SEC stated that Telegram is violating the Securities Act since the agency commission regards cryptocurrency as securities.
In their assertion, Telegram sold its tokens without authorization. In doing so, SEC’s Division’s enforcer said that the agency is preventing Telegram from flooding the market with such tokens.
The statement also reads that Telegram did not provide the right information to investors about the company’s business.
SEC also accused Telegram of not providing adequate information on the risk factors and other financial conditions investors need to meet.
Telegram may lose $1.7 billion as a result
In a recently reviewed document by the New York Times, Telegram has to return the money it has raised through the token if it fails to distribute the first batch before the 31st of October.
SEC also noted that there were 171 organizations and individuals that invested on the tokens, totaling 2.9 million purchases.
Of this number, 39 US investors made about 1 million of those purchases. Telegram violated the law by failing to register these sales.
The main concern here for SEC is the fact that these sales, if not registered, could trigger the market.
SEC says if Telegram does not register these tokens on time, it may lose the $1.7 billion the company has raised from the sales.
Telegram also struggling with the TON network
Telegram has TONnetwork, a blockchain platform it wants to pair with digital wallets.
The network aims to provide decentralized currency to users with a smartphone. However, the company is still struggling to establish the platform.
Already, Telegram has introduced the network to investors. It has not been able to disclose in full details how the platform would work.
This delay is related to the initial cancellation of the coin token the company placed in May 2018.
Even with the failed bid on the initial coin offering, the token presale raised about $1.7 billion.
It led to some concerns by investors that the network will appeal most to drug dealers and money launderers, owing to lack of oversight.
It appears that those handling Telegraph’s cryptocurrency division are not doing some things right.
In a recent statement by Steven Peikin, co-director at SEC’s Enforcement Division, issuers will not evade the federal security laws simply by labeling their product digital token or cryptocurrency.
He further said that Telegram wants to tap into the benefits of the public offering, but failing in its disclosure responsibilities to the public.
The agency is penalizing Telegram for failing to comply with two registration provisions in the commission.