Telegram continues to experience troubles with its token sales as a judge denies their request to issue the gram tokens to non-US investors.
Federal Judge Denies Issuing Gram Tokens to Non-US Investors
The US Southern District of New York District Judge P. Kevin Castel ruled on Wednesday, April 1, that Telegram cannot issue its gram tokens to non-US investors. According to the Judge, the social media company can issue its gram tokens, however, they have to ensure the tokens don’t end up in the hands of investors in the United States, something he feels they are unable to do.
The Judge’s latest ruling came after he earlier prevented any issuance of the gram tokens. This latest development comes as the Securities and Exchange Commission (SEC) continues its six-month-old court battle with Telegram regarding the Initial Coin Offering of its tokens. The SEC has been asking the court to stop the launch of Telegram’s blockchain project TON and to halt the social media company from issuing the gram tokens to buyers.
Telegram raised $1.7 billion in what was one of the biggest ICOs in cryptocurrency history. Telegram highlighted that the SEC doesn’t have jurisdiction over what happens to overseas investors. As such, they are putting in place measures to safeguard and stop non-U.S. Private Placement purchasers reselling the Gram tokens to U.S. buyers after receiving the coins. There would be a condition stipulating that non-U.S. investors can only receive their grams if they won’t sell them in the U.S., and they will also design the digital wallet to not welcome Americans.
However, Judge Castel was not convinced by the argument tabled by Telegram. He wrote that focusing on the first buyers and the Gram Purchase Agreement they signed, their argument misses one of the central points of the Court’s Opinion and Order. It failed to address the fact that the security was neither the Gram Purchase Agreement nor the Gram. However, it is the entire scheme that consists of the Gram Purchase Agreements and the following understandings and commitments made by the social media company. The commitment includes the expectation and intention that the initial buyers have the option to sell the gram tokens to a secondary public market.
Furthermore, the Judge wasn’t impressed by the measures Telegram wants to put in place to protect U.S. investors. He stated that the social media company didn’t actually explain how it intends to prevent the secondary sales of the gram token to U.S. investors or how it could lawfully change the Gram Purchase Agreement to enable such restrictions.
The Judge wrote that the TON blockchain was created based on anonymity for people who buy or sell grams. Hence, investors in the U.S. could easily claim or submit non-US addresses so they can purchase the tokens from foreigners. According to the Judge, Telegram didn’t previously raise the issue of SEC’s jurisdiction outside the U.S. As such, it is too late to put that into consideration at the moment.
Judge Understands Blockchain
The Judge understands the blockchain and cryptocurrency sector, according to Gabriel Shapiro, a blockchain and crypto-focused attorney. Shapiro pointed out that the Judge agrees with the SEC’s position that Telegram’s post-injunction arguments about extra-territoriality are coming at the wrong time. He added that Judge Castel knows fully well that Telegram’s KYC agreement doesn’t limit the distribution of gram tokens via other wallets developed on the open-source TON blockchain protocol.
Despite this latest outcome, Telegram revealed that it would appeal Judge Castel’s recent rulings.