Telegram’s ongoing battle with the U.S. Securities and Exchange Commission (SEC) just reached a turning point, and it wasn’t good news for the social messaging platform. After having been accused of offering an unregistered security with its Gram digital currency, Telegram began to fight back, but in February, the SEC asserted that it had evidence that the company was violating securities regulations. It now would seem that a judge has agreed.
Telegram has been given a preliminary injunction by a federal judge, ordering it to stop selling the Gram token. U.S. District Judge P. Kevin Castel, who has been listening to arguments in the case, has determined that, at first appearance, Telegram’s scheme to offer Grams in order to build the Telegram Open Network (TON) blockchain might be in violation of SEC guidelines, explaining, “[Considering] the economic realities under the Howey test, the Court finds that, in the context of that scheme, the resale of Grams into the secondary public market would be an integral part of the sale of securities without a required registration statement.”
Castel added that using the Howey Test was part of the process for any type of investment offering and that “reasonable purchasers would not be willing to pay $1.7 billion to acquire Grams merely as a means of storing or transferring value. Instead, Telegram developed a scheme to maximize the amount initial purchasers would be willing to pay Telegram by creating a structure to allow these purchasers to maximize the value they receive upon resale in the public markets.”
One of the issues comes in with how Telegram offered the Grams. They were made available through a Simple Agreement for Future Tokens (SAFT) contract, which is defined by securities regulations. SAFTs are investment contracts and an established type of security,