The entity alleges that the amount raised selling Gram tokens is an unregistered securities sale, although Telegram denied that the tokens were securities.
Last January 2nd, District Judge P. Kevin Castel, of the New York Southern District Court, ordered Telegram to respond to a request made by the U.S. Securities and Exchange Commission (SEC). The messaging platform must explain how the funds raised in its Initial Coin Offering (ICO) have been spent.
The SEC explained that the information related to the investment is necessary ahead of next week’s deposition of three Telegram employees, including founder and CEO Pavel Durov. It claims that the requested records are highly relevant to its ongoing case against Telegram.
In this way, the SEC alleges that the USD 1.7 billion raised selling Gram tokens constituted an unregistered securities sale.
“The requested bank records are highly relevant to the issues in dispute in this case, including how much money Telegram has spent, and in what manner, in developing the TON blockchain, the Telegram Messenger application to be integrated with the TON blockchain, and related applications”, the SEC affirms about why it needs the information.
The filing requests both testimony and documentation from Telegram relating to the amounts, sources, and use of the funds raised from investors.
“Defendant’s refusal to fully disclose and answer questions about their disposition of the USD 1.7 billion they raised from investors is deeply troubling”, the SEC’s letter states.
In October, the SEC announced emergency action against Telegram. At that moment, the institution said that the Gram token offering was an unlicensed securities sale although Telegram denied that the tokens were securities.
All of this led to a delay in the launch of the TON blockchain. Telegram had to explain the situation to its investors. The official launch was previously scheduled for October 31st, 2019. Then, it was planned for April 30th, 2020.
“We do not agree with the legal position of SEC, and we intend to defend ourselves vigorously against the lawsuit. We are proposing the extension of the deadline with the purpose of providing us with additional time to resolve SEC’s demand and work with other government entities before the launch of the TON network”, Telegram explained to its investors last October.
In response to SEC’s requests, Telegram has refused to hand over ICO allocation records relevant to the “efforts of others”, part of the Honey Test used by the SEC to determine if a financial product is a security.
“The SEC is asking the court for an order compelling production of this information immediately, in advance of an upcoming deposition”, Compound Finance general counsel, Jake Chervinsky said.
He adds: “The judge may already plan to grant the motion and just wants to give Telegram its chance to be heard before doing so. I wouldn’t be surprised if Telegram responds in a few hours and the judge issues an order granting the motion a few hours after that”.
The New York court ordered Durov to be deposed at a mutually agreed upon location. The deposition is scheduled for January 7-8 in Dubai, the United Arab Emirates. Now, it waits for Telegram’s answer.
By María Rodríguez