Encrypted messaging app Telegram has appealed the court decision that effectively killed its attempt to distribute its GRAM tokens based on claims that the TON digital asset was an unregistered security.

The SEC filed an emergency action halting the launch of Telegram’s blockchain, the Telegram Open Network, and the distribution of the protocol’s native token, GRAM. Just yesterday, the agency obtained a restraining order against Telegram and its wholly-owned subsidiary, TON Issuer, after a federal judge said they are conducting an unregistered securities offering that violates US laws.

The SEC, in its request for a halt, said that once the Grams were delivered, the token buyers and Telegram itself would be able to sell billions of Grams into US markets.

District Judge P. Kevin Castel of the Southern District of New York concluded in a preliminary injunction ruling that Telegram failed to register their offers and sales of Grams, which it says are securities, in violation of the registration provisions of the Securities Act of 1933.

“Considering the economic realities under the Howey test, the Court finds that, in the context of that scheme, the resale of Grams into the secondary public market would be an integral part of the sale of securities without a required registration statement,” he added.

Still, the SEC wants Telegram to return all funds raised, and pay a fine that includes prejudgment interest.

Ongoing legal battles

Telegram had promised to deliver the Grams to the initial purchasers no later than October 2019. Still, the US regulators sought to block the project just two weeks before the tokens were supposed to be unlocked for trading.

For that reason, Telegram told its ICO participants that the distribution of TON tokens would be delayed at least until April 2020 as the token distribution may give the SEC more grounds to support its claims that owning a Gram is the same as buying stocks or similar assets.

On its part, Telegram argued its token is not a security, and the US watchdog should not be able to block its $1.7 billion worth ICO.

Further supporting its request, the SEC said it obtained evidence of post-ICO sales, which undercuts the argument that the token sale was exempt from registration requirements. The US regulator said Gram tokens were sold after completing its ICO, and two companies already invoiced Telegram for commissions from selling the Grams, months after the controversial initial coin offering concluded.

Telegram had reportedly sold its Gram virtual coins in two private funding rounds, with proceeds going towards the creation of a decentralized network for the app. At the time, Telegram already reported to the SEC that it had raised the funds in private placements, which were used to develop TON blockchain. Since the ICO excluded retail investors, the firm claimed an exemption from US requirements to register their tokens as a security until the SEC has stepped in to halt Telegram crypto ambition.