Telegram, the fast-growing social network that attempted to raise funds via a digital asset offering, has decided to settle an enforcement action initiated by the Securities and Exchange Commission (SEC).
According to a release, the SEC has obtained court approval of a settlement with the Telegram Group, Inc. that agreed to pay an $18.5 million civil penalty while returning over $1.2 billion to investors. Additionally, Telegram is required, for the next three years, to give notice to the SEC staff before participating in the issuance of any digital assets.
In October 2019, the SEC filed a complaint alleging that Telegram, and its sale of “Grams” had violated federal securities law and registration requirements.
On March 24, 2020, the U.S. District Court for the Southern District of New York issued a preliminary injunction barring the delivery of Grams and finding that the SEC had shown a substantial likelihood of proving that Telegram’s sales were part of a larger plan to unlawfully distribute the tokens to the public secondary market.
Telegram will now be able to put the entire saga in the history bin and move forward with the ongoing development of its platform. Last May, Telegram had made the decision to abandon its digital asset offering foreshadowing a diminishing will to battle the Feds. At that time, former SEC attorney Philip Moustakis, told Crowdfund Insider:
“The SEC is charged with safeguarding U.S. investors and capital markets. And the SEC was not acting on an event that was yet to occur. After all, Telegram raised $1.7 billion from its offer and sale of Grams, including $425 million from U.S. investors. That’s not small potatoes. True, there was a gap in time between the capital raise and the planned distribution of the Grams, that is, the tokenized representation of the investors’ secured interests in TON. However, in the SEC’s view, that does not change the securities law analysis and, thus far, it seems the court agrees.”
Telegram has yet to make any statement regarding the settlement.
Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit, issued the following statement:
“New and innovative businesses are welcome to participate in our capital markets but they cannot do so in violation of the registration requirements of the federal securities laws. This settlement requires Telegram to return funds to investors, imposes a significant penalty, and requires Telegram to give notice of future digital offerings.”
Lara Shalov Mehraban, Associate Regional Director of the New York Regional Office, said the remedies they obtained provide “significant relief to investors and protect retail investors from future illegal offerings by Telegram.”
Without admitting or denying the allegations in the SEC’s complaint, the defendants consented to entry of a final judgment enjoining them from violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933.
The judgment orders defendants to disgorge, on a joint and several basis, $1,224,000,000 in ill-gotten gains from the sale of Grams, with credit for the amounts Telegram pays back to initial purchasers of Grams, and also orders Telegram Group Inc. to pay a civil penalty of $18,500,000.