- Telegram asked the court to clarify whether GRAM tokens can be distributed outside the US.
- The messenger implies that the SEC lacks the required extraterritorial authority.
- Experts say it’s unlikely the judge will give way.
Telegram on Friday asked the New York Southern District Court whether it can distribute tokens for its upcoming blockchain network to non-US investors. This would clarify the terms of a temporary injunction that, once again, prevents it from distributing tokens raised in a $1.7 billion ICO sale.
Telegram, which is best known for creating its eponymous messenger app, stated that only $424.5 million of its $1.7 billion ICO sale for the Telegram Open Network was raised through purchase agreements with US-based investors. It raised the rest—over 70%—through purchase agreements from non-US investors, it claims. “These transactions fall outside of the reach of the U.S. securities laws,” it wrote in the letter to the court.
Telegram first made such an argument to the court in November: "Telegram’s purchase agreements with foreign purchasers are not domestic transactions. Accordingly, the SEC lacks extraterritorial authority over any of the transactions between Telegram and foreign purchasers."
David Gerard, blockchain critic and author of Attack of the 50 Foot Blockchain, told Decrypt that this request implies Telegram wants to make Grams—TON's native token—tradeable on non-US exchanges.
Telegram: The story so far
On Tuesday, Judge P. Kevin Castel issued a temporary injunction that prevents Telegram from distributing $1.7 billion worth of Grams it raised in its token sale for TON. This granted the request of the US Securities and Exchange Commission, which since October 2019 has alleged that the token sale was an illegal securities sale. It also continues an injunction that was issued shortly after the court case began.
In an opinion and order filed on Tuesday—the first written response since a court hearing last month—Castel appeared to side with the SEC. The SEC “has shown a substantial likelihood of success in proving that Telegram’s present plan to distribute Grams is an offering of securities,” he wrote.
To convince Judge P. Kevin Castel to let it distribute Grams to non-US citizens, Telegram promises to address concerns that Grams could potentially be sold to US citizens via secondary markets. In its letter to the court on Friday, Telegram said it would prohibit US purchasers from receiving Grams upon the launch of the TON blockchain, and to “preclude U.S.-based addresses" from using the TON wallet.
But Gerard doesn’t think that the Castel will allow Telegram to sell tokens to non-US purchasers. “I would be surprised if Judge Castel says non-US sales are fine,” he said. “This is a preliminary injunction, not a final one, and the SEC has strong concerns which the judge has agreed are legally robust.”
Gerard said that the SEC wants Telegram to return the $1.7 billion to investors, be banned from launching more token sales in the US, and to pay a penalty. “So I would expect the SEC to have concerns over non-US sales being permitted if Judge Castel does let these through,” he concluded.