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On October 16, 2019. Telegram’s counsel, Skadden, Arps,
Slate, Meagher & Flom LLP filed its response to the SEC’s emergency
application for preliminary injunction.
Telegram claims that the SEC unreasonably refused to enter into a stipulation and documents requested by the SEC implicate serious data privacy issues
states that Telegram has agreed to stipulate that it will not make any offers,
sales or deliveries of its expected cryptocurrency, called “Grams,” so that the
Court can resolve the legal issues at the heart of the matter. Telegram believes that the SEC is trying to
steamroll it into consenting to a preliminary injunction where there is no
need. Telegram believes this is so that the SEC can gain a strategic litigation
advantage and engage in broad and burdensome “emergency discovery” despite the
absence of any emergency.
Telegram claims it has been communicating with the SEC for the past 18 months
The Response states that Telegram has voluntarily engaged
with, and solicited feedback from, the SEC regarding the development and
planned launch of its decentralized blockchain platform (the “TON Blockchain”)
and Grams, consistent with the SEC’s publicly stated desire to engage with
developers of digital asset technologies.
Telegram has stated that it has engaged with the SEC in the following
Telegram claims that the SEC created the emergency situation
Telegram claims that during the 18 months during which the
SEC and Telegram were communicating, the SEC:
Grams are not securities based on precedent, the SEC’s own views and common sense
Telegram claims this was not an offer to the general public via
an Initial Coin Offering (ICO). Instead,
Telegram entered into private purchase agreements with a limited number of
highly sophisticated purchasers that provided for the future payment of Grams
but only following the completion and launch of the TON Blockchain. The Grams, unlike purchase contracts, will be
merely a currency or commodity (like gold, silver or sugar) – not a “security”-
once the TON Blockchain launches. Telegram cites SEC Director William Hinman’s
Asset Transaction: When Howey Met Gary.
Where do the SEC and Telegram go from here?
A Court hearing is scheduled in the Southern District of New
York on October 24, 2019. Telegram is
seeking an order that:
It will be interesting to see how this all unfolds because it
will answer many questions that exist from both practitioners and issuers in
this space. If you have any questions,
please email me or leave a comment below!