Telegram, a major social network with hundreds of millions of users, had attempted to raise funds through a digital asset offering. However, it recently decided to settle an enforcement action initiated by the US Securities and Exchange Commission (SEC).
While Telegram claims it terminated its blockchain or distributed ledger tech (DLT) project (Telegram Open Network or TON) in May of this year, the TON test network (testnet) has still been running for nearly a year now.
On July 6, 2020, the TON development group confirmed that they would be discontinuing their support of the TON testnet. The TON validators that still might be running will all be turned off and brought offline by August 1, 2020.
The official TON-recommended network participants will be saving all their data and will also be suspending their testing processes by next month.
Although the testnet will be shut down soon, its network participants will have the option to continue experimenting with the software. Users who are interested in working with the software may install their own validators. There are three different documents that provide detailed instructions on how to work with TON Network Full Nodes, the Validator, and Test Grams.
In September 2019, Telegram had launched the TON testnet which included an explorer to view transactions and node software. The TON developers had also introduced an alpha version of an iOS wallet that would work with the platform’s native token. The TON team had been planning to launch their DLT network in October 2020.
However, these plans have now been changed, as the US SEC has ruled that Telegram’s $1.7 billion ICO was carried out in an illegal manner, mainly because it violated established US securities laws.
Telegram’s founders had been involved in a lengthy court battle with American regulators. But the company finally decided to give up and abandoned the TON project. It has also agreed to give back $1.2 billion to the project’s investors, which was part of a court-approved final settlement.
Pavel Durov, the CEO at Telegram, confirmed recently that the company has reimbursed over $1.2 billion to investors, as of June 25, 2020.
The SEC’s action against Telegram stands in stark contrast to the enforcement approach taken against Block.one (EOS). In September 2019, Block.one settled an enforcement action with the SEC paying a $24 million civil penalty for allegedly conducting an unlicensed ICO (initial coin offering) crowdsale. Block.one raised about $4 billion in an offering. Thus, $24 million was peanuts. Some followers posited that perhaps the crypto was deemed sufficiently decentralized by the SEC.
Philip Moustakis, counsel at the law firm of Seward & Kissel, who has been following the Telegram case closely, told Crowdfund Insider in May 2020:
“Each SEC settlement will reflect the underlying facts and circumstances, as well as any litigation risk for the SEC, should the agency not settle and instead press its case in an administrative proceeding or a district court action. From the outside, we cannot know the pressure points in such settlement negotiations.”
“However, reading tea leaves, in the case of Block.one, there is the uncommon fact that the tokens offered and sold in the ICO [initial coin offering] became fixed and non-transferrable once the ICO closed. The SEC may have felt that fact alone posed a significant litigation risk in terms of the securities law analysis. Block.one also took certain steps to block U.S. persons from participating in the ICO. And, there was also the question of what assets the SEC could reach; Block.one was a Cayman Islands registered company with offices in Hong Kong.”