The SEC issues a restraining order on the Telegram Group’s unregistered ICO

The Securities and Exchange Commission continued their crusade against unregistered and unregulated ICO’s today, by filing a temporary restraining order against Telegram Group and its subsidiary TON Issuer for their ongoing digital token offering.

Telegram Group and its TON issuer subsidiary started raising capital in January 2018 to finance the development of its own blockchain, the “Telegram Open Network” or “TON Blockchain,” as well as a mobile messaging app.

Telegram had previously refused to release key details regarding the project since cancelling an ICO in May of last year because of regulatory concerns, but earlier this month, the company broke their silence about their involvement with TON, revealing that they would integrate the wallet into the company’s messaging app as well as offer it as a standalone product.

TON is a blockchain network project designed to be fast, secure, scalable and capable of handling millions of transactions per second. TON is designed to be a competitor to Ethereum’s smart contracts and decentralized applications while also being extremely scalable. Naturally, there’s absolutely no information either in their subsequent publications or their white paper, as to how they accomplish this feat.

But that didn’t stop people from lining up to give Telegram their money.

Telegram sold 2.9 billion digital tokens (called Grams) to 171 initial purchasers, including more than 1 billion Grams to 39 U.S. based purchasers. Telegram has promised to deliver the Grams when its blockchain launches on October 31, 2019, and the purchasers and Telegram will be able to sell billions of Grams into the U.S. markets.

The complaint?

Telegram, and its crypto-focused subsidiary TON Issuer, didn’t register an early sale of $1.7 billion of its crypto tokens prior to the October 31st launch of its blockchain network. This would naturally raise red flags with regulators and security researchers, because without sufficient oversight Telegram’s network could easily attract money launderers, drug dealers and other criminals. That, and the SEC treats cryptocurrency as securities and the agency says Telegram is in violation of the Securities Act.

“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,” said Stephanie Avakian, co-director of the SEC’s Division of Enforcement.

What is Gram supposed to do?

The TON Blockchain is a utility blockchain—essentially an alternative to Ethereum that resolves the latter coin’s scalability issues and offers greater functionality in terms of processing transactions and smart contracts.

Gram will be used for:

  • Commission (“gas”) paid to TON nodes (“validators”) for processing transactions and smart contracts.
  • Stakes deposited by validators to be eligible to validate transactions and generate new blocks and coins.
  • Capital lent out to validators in exchange for a share of their reward.
  • Voting power required to support or oppose changes in the parameters of the protocol.
  • Payment for services provided by apps built on the platform (TON Services). Payment for storing data securely in a decentralized way (TON Storage).
  • Payment for registering blockchain-based domain names (TON DNS) and hosting TON-sites (TON WWW).
  • Payment for hiding identity and IP addresses (TON Proxy)
  • Payment for bypassing censorship imposed by local ISPs (TON Proxy).
  • Gram will also be available for use outside of TON like any other cryptocurrency currently in the market.

There are some positives on this list. The privacy aspects, the storage options, and the functionality of the wallet, which will hold your funds if the wallet is inactive, are welcome additions.

—Joseph Morton

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