Telegram accuses SEC of being ‘unconstitutionally vague’

Popular messaging app Telegram, which is currently being investigated after a ruling by the Securities and Exchange Commission (SEC) that its GRAM token is a security, has hit back at the US regulator’s decision, accusing officials of being “unconstitutionally vague”.

Telegram was accused by the SEC of selling GRAM tokens to investors in the US without the applicable exemptions from securities registrations. As a result, SEC officials launched a probe to determine the conditions around GRAM’s sale.

The token, which will be used to power Telegram’s new proprietary TON blockchain, has been described by Telegram as a native currency for its blockchain rather than a security. However, the SEC argues that this doesn’t change the status of the token at the time of its sale.

GRAM was sold to accredited investors during a two-stage private token generation event which began in January 2018 and concluded in March 2018. Each stage raised $850 million, with an average investor buy-in during the first sale of $8-10 million.

In an official 35-page legal response filed on November 12, Telegram argues that its first sale was pursuant to SEC securities exemptions laid out in Rule 506(c) of Regulation D under the Securities Act of 1933.

However, during GRAM’s second sale, Telegram only filed a ‘Notice of Exempt Offering of Securities’ with the SEC after the sale had concluded. The SEC was also concerned that early investors would sell tokens to retail investors at a huge profit once the platform is live.

Telegram’s legal response

Legal representatives acting on behalf of Telegram argued that GRAM’s private placement sale and the launch of the TON blockchain were in keeping with SEC guidelines at the time. They further argue that the SEC had “failed to provide any concrete public guidance” on what Telegram believes is a developing area of the law.

In a direct attack against the SEC’s ruling, Telegram’s representatives accused SEC officials of being “unconstitutionally vague” in deciding the definition of an investment contract in Telegram’s case.

Telegram maintains that the SEC’s guidance on its token sale, and indeed on token sales as a whole at the time, was insufficiently robust for the company to act entirely within guidelines.

Despite this, Telegram reminded SEC officials in an October 17 filing that the company has been in contact with the regulator throughout the last 18 months, during which time it had repeatedly sought counsel from the SEC regarding the sale.

The SEC is yet to provide an official response to Telegram’s latest filing.