SEC announces "emergency" halt of Telegram’s Gram cryptocurrency sale

Telegram's cryptocurrency kickoff halted by SEC

The blockchain platform is created to be paired with a digital wallet that, like Facebook's struggling Libra project, aims to offer decentralized currency to anyone with a smartphone.

The SEC alleges that once the tokens are distributed to the initial purchasers they will be resold to the investing public on the open market.

Telegram promised to give the coins to buyers when it launched its blockchain by October 31, when the purchasers and the company would be able to sell them into United States markets, the SEC said. The Telegram group started working on its blockchain project known as Telegram Open Network (TON) since January 2018.

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 now generate revenue.

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Messaging app Telegram has 300 million monthly users worldwide and raised more than $1.7 billion in funds in the U.S. and overseas through a cryptocurrency issue. Also, the token-sale consists of selling over 1 billion tokens to 39 U.S investors.

"We have repeatedly stated that issuers can not avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token", Steven Peikin, Co-Director of the SEC's Division of Enforcement. But Telegram never registered the sale, and as a result it broke the law, the SEC says, and may have to forfeit the $1.7 billion it's raised.

Telegram sold its Gram virtual coins in two private funding rounds, with proceeds going to create a decentralized network for the app. Even with that, it wasn't until very recently that Telegram had publicly said that it was working on TON.

San Francisco-based crypto asset exchange Coinbase confirmed it would offer custody support for Grams once they're live. In keeping with the SEC grievance Telgram didn't register their provides and gross sales of the tokens, which the SEC considers to be securities.

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