The United States Securities and Exchange Commission (SEC) has said that Telegram Group’s Gram (GRM) ICO was an unregistered digital token offering, the agency announced on 11 October.
According to the press release, the regulatory agency filed for an emergency action and obtained a temporary restraining order against the Telegram Group and the Telegram Open Network (TON), which aims to stop the company from selling and distributing the GRM token in the United States.
The SEC further stated that, out of the 2.9 billion GRM tokens sold, 1 billion of them went to U.S. investors, and that the company failed to provide its investors with sufficient information regarding the GRM token and its own operations.
Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, said in a statement:
“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.”
Telegram originally submitted a “Form D” filling with the SEC, which allows a company to sell a security without registering it with the SEC using one of two exemptions.
The one Telegram used was exemption 506(c), which allows the company to advertise its token offering, but could only sell it to accredited investors.
According to the full SEC complaint, the GRM token would initially be sold only to accredited investors, but those token holders would eventually resell their tokens, which according to the SEC will violate the 506(c) rule.
The complaint reads:
“Once Telegram delivers the Grams to the Initial Purchasers, they will be able to resell billions of Grams on the open market to the investing public. Telegram and/or its affiliates will facilitate these sales on digital-asset trading platforms. Once these resales occur, Telegram will have completed its unregistered offering with billions of Grams trading on multiple platforms to a dispersed group of investors.”
Even though the GRM token has still not been distributed to investors, a secondary market for it has already emerged, with some crypto exchanges and OTC desks selling the future rights to the GRM token.
Last week Block.one, the company behind EOS, reached an agreement with the U.S. SEC to pay $24 million for similar charges.
Even though the regulatory agency decided that the company conducted an unregistered securities sale, it did not force them to register the current EOS token as a security, but only pay the fine.