Source: Finance Network Chain Finance
Judge P. Kevin Castel of the US District Court for the Southern District of New York, which heard the SEC suing Telegram for issuing illegal securities, decided to retain the SEC motion and rejected Telegram's defense that "the SEC prosecution violates the principle of unclear invalidity".
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Telegram's defence was: "The SEC did not provide clear guidance on what constitutes a violation of federal securities laws, and the SEC did not provide Telegram with reasonable notice of its legal obligations in accordance with the due process provisions, which is helpful to Telegram's reasonableness before being sued Dominate your own actions. The legal action taken by the SEC is temporary and arbitrary. "At the same time, the US federal securities laws have an unclear definition of an" investment contract, "so the company has reason to be exempt. The SEC considers Telegram's defence to be inadequate, and notes that the "investment contract" has been clearly defined in the regulatory framework for "investment contracts" analysis of digital assets.
Earlier, Telegram claimed that "no securities were issued to the public through an ICO." The $ 1.7 billion it raised was raised through the Future Token Simple Agreement (SAFT) framework. Telegram has signed a private purchase agreement with some private equity investors, which stipulates that Gram can only be acquired after TON is launched.
According to Telegram: "Telegram has treated private placement as a security issue under the effective registration exemption of the Securities Act of 1933. After the launch of TON, the essence of Gram will be transformed into a token or commodity (such as gold) under the SAFT framework. , Silver, or sugar), not "securities."
SAFT is an "investment contract" provided by cryptocurrency issuers to licensed investors, promising to provide a certain number of tokens when the network operates. SAFT is considered a securities issue and must comply with the Securities Act. Under this framework, SAFT is considered a securities issue to investors during the fundraising period, assuring them that the token will be delivered after a certain time. After the issuance of the token, the token can be regarded as a non-securitization utility token that operates outside the existing Securities Law, but it does not represent SEC recognition.
In the case of SEC v. WJ HoweyCo., 328 US 293 (1946) (Howey), the SEC explicitly stated that the "Howey Test" applies to any contract, scheme or transaction, whether or not it has the characteristics of a typical security. The focus of the Howey case is not only on the form of the digital asset itself, but also on the environment surrounding the digital asset and the way it is sold or resold (including secondary market sales). Therefore, issuers and other individuals and entities engaged in the marketing, offer, sale, resale or distribution of digital assets need to analyze related transactions to determine whether the Securities Law applies.
"HoweyTest" determines whether a financial instrument is an "investment contract" and thus constitutes "securities", which contains four elements: (1) capital investment; (2) investing in a common enterprise; (3) expecting to obtain profits; (4) not Participate directly in the business, relying solely on the efforts of the promoters or third parties.
The "investment contract" complies with the four elements of the "Howey Test". Investors invest in a common cause and look forward to profit from it. Investors do not directly participate in the business, but rely solely on the efforts of the promoters or third parties.
The Case of Howey pointed out that the subscription or acquisition of digital assets is usually purchased in physical (or legal) currency, another digital asset or other form of conversion, which is consistent with “capital investment”; the SEC stated that when evaluating digital assets, There is a "common enterprise". When using "HoweyTest" to analyze digital assets, the main problem is to determine whether the subscriber has reasonable expectations of the profits obtained by the efforts of the promoter or third party. The purchaser may wish to obtain a return by participating in distribution or by adding value to the asset, such as selling it on the secondary market for gains. When the sponsor, or other third party (or an affiliate of a third party) (that is, an "active participant" (AP)) provides basic management efforts that affect the success of the business, and the investor reasonably expects profits from these efforts , This element is satisfied.
On October 11, the SEC filed a temporary restraining order for Telegram to suspend Telegram's plan to list its cryptocurrency Gram at the end of October.
On October 17, Telegram emailed investors to postpone the launch of the TON blockchain project, pushing the deadline from October 30, 2019 to April 30, 2020, and stated that if most investors do not agree to the extension, The company will return 77% of the investment funds. Most investors voted against the refund, delaying the tentative sale date by half a year.
On November 25, the court ordered Telegram founder Pavel Durov to testify on the sale of Gram tokens on January 7 or 8, 2020. Telegram Vice President Ilya Perekopsky and Shyam Parekh, an employee involved in the Gram token sale, will also testify on different dates.
Although Telegram has temporarily stabilized investors and won the "extra" 6 months, there are still variables as to whether the "extra" time is sufficient.
If the SEC's tug-of-war with Telegram reaches the stipulated time limit, it may face the risk of "abortion" of the coin issuing plan. It is reported that Telegram's business has been burning money. In 2017 alone, it burned $ 70 million in server fees, user verification, and employee compensation. According to the white paper, Telegram is expected to spend $ 620 million over four years starting in 2018. If Telegram has been unable to generate revenue and spending levels continue to increase, the company may eventually face bankruptcy or be forced to raise more capital on unfavorable conditions.