SEC Seeking to Compel Bank Records Regarding Telegram’s $1.7 Billion Token Sale

The US Securities and Exchange Commission (SEC) has asked a judge to order Telegram to submit bank records detailing how it has been spending $1.7 billion USD it raised from investors in 2018, Finance Magnates(FM) reports.

Telegram is currently contesting emergency orders obtained by the SEC in October prohibiting the secondary sale of Telegram’s GRAM tokens in the U.S.

According to text from the filing provided by FM, the SEC claims:

“Defendants are now refusing to disclose the bank records concerning how they have spent the $1.7 billion they raised from investors in the past two years and to answer questions about the disposition of investor funds.”

“Plaintiff respectfully moves to compel Defendants to answer questions and provide documents regarding the amounts, sources, and use of funds raised from investors in connection with the unregistered sale of securities at issue in this case.”

Telegram says it raised “approximately $1.7 billion from 171 purchasers” in 2 investment rounds conducted in January and March 2018. Investors from the U.S. were officially precluded from the sale, but Finance Magnates claims, “many got their hands on the tokens via third parties.”

The money was raised to build Telegram’s TON (Telegram Open Network) blockchain, a multipurpose system with, “a built-in Telegram messenger, tools of payments using Gram cryptocurrency, data storage tools and an operating system for decentralized apps.”

Telegram is an encrypted messaging app company founded by Russian brothers Pavel and Nikolai Durov. The two also started “Russian Facebook,” Vkontakte.

“Blockchain” is a competitive space, especially lately, and Telegram promised investors it would launch TON by October 31st or return at least part of investors’ money.

On October 11, the SEC filed an emergency action against Telegram and was granted a restraining order prohibiting the secondary sale of GRAM tokens to investors in the U.S.

In that filing, Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement stated:

“Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold…We allege that the defendants have failed to provide investors with information regarding Grams and Telegram’s business operations, financial condition, risk factors, and management that the securities laws require.”

Steven Peikin, Co-Director of the SEC’s Division of Enforcement, stated in the complaint that Telegram had ignored the SEC’s clear position with regard to the sale of cryptographic tokens in the U.S.:

“We have repeatedly stated that issuers cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token. Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.”

In December, the SEC sought to depose UK citizen John Hyman, identified by Telegram CEO Pavel Durov as “Telegram’s chief investment advisor.”

The SEC believes Hyman brokered many of the private deals that comprised the  $1.7 billion raise.

They say Hyman was initially cooperative but recently stopped answering the regulator’s calls.

Responding to the SEC’s emergency measures, Telegram claimed, “the SEC is attempting to seize upon the Order to Show Cause, submitted by the SEC and entered ex parte, to steamroll Telegram into consenting to a preliminary injunction where there is no need.”

Russian Forbes reported in late October that a majority of Telegram investors voted to grant the company a six month extension on the release of TON rather than take a refund.

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