Telegram gets into a war with SEC over allegations that Telegram did an illegal sale of its tokens. According to the US Securities and Exchange Commission, the sale was done to finance the company as opposed to being a regular IPO.
According to research done by SEC, Telegram did the sale in a bid to raise money for paying for its servers. That is contrary to what Telegram said during the time of sale. it claimed that it is raising financing for next-generation blockchain that will be more efficient and versatile than its predecessors. A document released on Thursday was evidence did the equity sale to raise money for paying for the equipment.
The token sale took place in early 2018 and the company raised to $1.7 billion. SEC, however, followed up n the company and sued it in October 2019 on claims that its tokens, grams were unregistered securities. This made SEC stop the launch of its TON blockchain. There is currently a lawsuit on the same in court and the hearing is scheduled next month.
All through, Telegram was funded by its founder Durov but in 2017 he needed funding to pay for servers and all related services. He analyzed other options but opted for a token sale for the sake of the company’s integrity values. Telegram had the option of raising funds through selling ads or charging its users but it did not opt for that as it felt it will hinder its growth and give it a competitive disadvantage.
Need for cash
According to evidence that SEC had that was in the form of messages, it was clear that Telegram needed more money to buy servers. They dint take the VC route as they dint get a lucrative deal. Telegram was contemplating to raise equity but instead opted for the cryptocurrency plan since it was the best option for them.
So that investors would be sure about their investment, Telegram gave them links to the key generator for generating wallet for grams. It did this with the help of Ton labs who were their partners but with more engineers and developers.
According to Telegram employees who were also Gram investors, Gram was more of a security in traditional capital market terms. Most investors, therefore, don’t intend to use Grams as a validator in the TON blockchain but rather as a pure investment.
Fighting back SEC
Telegram filed back a response to SEC over the allegations citing the emergency injunction was unnecessary. They further went ahead to say that gram is not a security and thus Telegram is not obliged to produce any supporting documents about the Ton blockchain project. According to Telegram, there is no federal law that they have violated. Telegram clarified that it did not hold an ICO to raise money but rather did a Simple Agreement for Future Tokens (SAFT) framework.