SEC Hits Back at Telegram $1.7B ICO Despite Exemption Claims

Since the ICO excluded retail investors, Telegram claims an exemption from US registration requirements.

The US Securities and Exchange Commission has stepped in to halt Telegram crypto ambition, alleging its “two offshore entities” have conducted an illegal $1.7 billion securities offering of digital tokens.

“Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold,” said the regulator.

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The SEC further states that the encrypted messaging app didn’t provide buyers of its Gram token with information regarding business operations, financial condition, risk factors, and management that the securities laws require. These allegations match skeptics’ assumption that collected investments may be used to fund Telegram’s general operations, as the app does not currently generate revenue.”

“Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public,” it added.

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Just yesterday, the wildly-popular chat platform updated its Terms of Service to officially introduce Grams Wallet, which was its first public statement about their involvement in cryptos.

Telegram claims exemption from registration requirements

The watchdog’s action, however, may be confusing as Telegram has already canceled its initial coin offering after it raised a record-setting $1.7 billion from a group of less than 200 private investors. Although the overall goal of the app’s ICO was an eye-opening $2 billion, Telegram has scrapped plans to open its offering to the public in order to avoid the murky regulatory waters governing the crypto industry.

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 was able to claim an exemption from US requirements to register their tokens as a security.

Telegram sold its Gram virtual coins in two private funding rounds, with proceeds going to create a decentralized network for the app. In May 2018, the second round of fundraising collected $850 million from 94 accredited investors, who were required to pump a minimum of $1 million. That has doubled the investment funds raised by the first presale ‎offering, which closed a similar $850 million financing round ‎from 81 investors.

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