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SEC halts Telegram's $1.7B token offering

323 points by jmsflknr 7y ago

CryptoPunk 7y ago
The SEC registration requirements are a blatant violation of the freedom to contract. An individual should decide for themselves whether they will invest in a venture, not have that decision made for them by politicians and opinionated busybodies.
- Kinnard 7y ago
  How do we realize this freedom in practice though?
  - CryptoPunk 7y ago
    Could you elaborate? You mean realize it by how we structure the law? The answer to that is to repeal all statutes not consistent with Common Law and moving forward, depend solely on Common Law, which has long-established principles limiting state overreach and establishing genuine consent.
- theamk 7y ago
  That's how we ended up with Great Depression. We don't want this to happen again.
  - CryptoPunk 7y ago
    The Great Depression had nothing to do with people being free to buy stocks. It was a classic bubble being burst, followed by counter-productive government measures to prevent prices/wages from deflating (which they needed to do as the money supply contracted): https://www.eurekalert.org/pub_releases/2009-08/uoc--hps081909.php https://www.eurekalert.org/pub_releases/2009-08/uoc--hps0819... https://www.wsj.com/articles/SB123353276749137485 https://www.wsj.com/articles/SB123353276749137485
- elchupanebre 7y ago
  SEC requirement is a side effect of the fact that contracts are enforceable in a court of law.
  - CryptoPunk 7y ago
    Every conceivable agreement, written and unwritten, is enforceable in a court of law. By your rationale, this justifies gatekeeping every form of human interaction.
    - elchupanebre 7y ago
      No. Far from it. If you buy cocaine from Colombia your contract won't be enforceable in a court of law.
      - CryptoPunk 7y ago
        I mean everything not prohibited. Your argument now is tautological.
        elchupanebre 7y ago
        You are still wrong though :) Gambling contracts are legal in a lot of states. They are also generally not enforceable through courts. If my argument is tautological (I think not), yours is just factually wrong :)
        CryptoPunk 7y ago
        Can you give an example of a legal gambling contract that is unenforceable in court, and provide a source? >>If my argument is tautological (I think not), yours is just factually wrong :) At least you're admitting you were making a tautological argument.
emilfihlman 7y ago
Does Telegram have assets in the USA to stop or otherwise punish them? I don't see how the SEC could otherwise do anything about it.
- RcouF1uZ4gsC 7y ago
  The USA, especially in the area of financial regulations has a very, very long reach.
  - csours 7y ago
    I agree. Basically if you use US Dollars then US regulators consider you under their jurisdiction, because they can stop you from using US Dollars by limiting other entities (banks, payment processors) dealings with you.
  - ttsda 7y ago
    Telegram as a corporation seems very determined to evade that reach, and appears to have the resources to pull it off.
    - emilfihlman 7y ago
      Exactly this. Given how they have evaded Russia for a long time now, Murica must have something else in their assets to exert control over them.
      - RcouF1uZ4gsC 7y ago
        Basically to evade American reach, you need to have support from Russia and/or China. If you don't have that support, you are going to have a very hard time.
        threeseed 7y ago
        And Russia and China are hardly the type of countries who are keen to support a secure messaging platform.
RcouF1uZ4gsC 7y ago
Before, a lot of token offerings could skate under the radar. That day is over, and the SEC is cracking down. Anyone offering anything close to a token would be well served talking to a lawyer experienced in securities law.
- snagglegaggle 7y ago
  I've always been kind of confused as to how the SEC has jurisdiction on this. The Telegram tokens don't appear to be a stake in the company and rather seem to be similar to a PayPal account balance. Companies can effectively issue money via coupons or redeemable certificates. In the case of coupons there is some law about requiring them to have a marked cash value. EDIT: Though it will prompt more downvotes -- explain them when downvoting, thanks.
  - DiogenesKynikos 7y ago
    From the SEC's filing: > Grams are securities because the Initial Purchasers and subsequent investors expect to profit from Telegram’s work: the development of a TON “ecosystem,” integration with Messenger, and implementation of the new TON Blockchain. Grams are not a currency because, among other things, there are not any products or services that can be purchased with Grams. Rather, there is an expectation on the part of investors that they will profit if Telegram builds out the functionalities it has promised. It continues: > The definition of a “security” includes a wide range of investment vehicles, including “investment contracts.” Investment contracts are instruments through which an individual invests money in a common enterprise and reasonably expects profits or returns derived from the entrepreneurial or managerial efforts of others. In a variety of circumstances, courts have found that novel or unique investment vehicles constitute investment contracts, including interests in orange groves, animal breeding programs, railroads, airplanes, mobile phones, and enterprises existing only on the Internet. As the U.S. Supreme Court has noted, Congress defined “security” broadly to embody a “flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.”
helpPeople 7y ago
Give it 30 years and Africa will be the future of banking and medicine. Free from the burdens of establishment regulations. I worry we are losing our competitiveness.
PunchTornado 7y ago
> “We have repeatedly stated that issuers cannot 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. “Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.” I agree.
aey 7y ago
This isn’t a block on another telegram’s sale, but on their launch. Telegram filed an exemption for their original sale, and have been compliant with the SEC. https://www.sec.gov/Archives/edgar/data/1729650/000095017218000060/xslFormDX01/primary_doc.xml https://www.sec.gov/Archives/edgar/data/1729650/000095017218... What this action threatens is the SAFT model. It’s not clear what steps TG needs to take to disassociate themselves from the launch such that TON is decentralized and no longer a security. Or if they need to file a reg-a or s-1 before launch. [edit for clarity]
- dang 7y ago
  The title states flatly that they're halting the offering. Is that inaccurate? What's the distinction here? If the title is misleading, the practice on HN is to replace it with a better (i.e. accurate and neutral) one, as described at https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html.
  - aey 7y ago
    Offering is any time the token is issued, like on launch. The word is misleading since TG is not doing another sale. They actually complied with SEC during the sale. This is the launch which requires the tokens to be liquid for the network to function. My guess is that TG will file for a reg-a like blockstack.
    - elliekelly 7y ago
      > Offering is any time the token is issued, like on launch. The Securities Act defines “offer” to include any attempt to dispose of a security for value. In order for anyone - Telegram or Joe Schmoe Gram investor - to “offer” a security it needs to be either (1) registered or (2) exempt from registration. Since Telegram filed Form D and the SEC has brought charges alleging an unregistered offering it would seem the SEC does not agree that the ICO was exempt and so Telegram was not in compliance with federal securities laws. But even if the ICO were by some miracle exempt, without a registration statement the securities can’t be offered for sale to the public - regardless of whether they were new issues directly from Telegram or existing securities being offered for sale in Telegram’s new marketplace by Telegram users.
ttul 7y ago
This is great. Telegram's token offering was a gigantic scam. Does anyone really believe their tokens are worth $1.7B anymore?
- ainar-g 7y ago
  Which is honestly a shame, because Telegram the messenger is freaking amazing. Probably the best instant messaging experience of my whole life. If only Pavel “Pashka” Durov decided to fund the company with something less scammy. Like a premium version with VPN and maybe some additional features like even bigger file uploads. I would be among the first clients.
  - m12k 7y ago
    It's the only IM app that does notifications right. I get a message and 'unread messages' notifications pop up on both my computers and my phone - the moment I click to focus the app on one of them, the notifications on the other computer and phone go away. With other apps it seems there's always a risk that a notification marker is just a leftover from before that they forgot to clear - that's never the case with Telegram.
    - ainar-g 7y ago
      Don't forget about drafts being synced between devices. I remember the first time I've noticed that: “Wait, didn't I write this on my phone? Why is this in my desktop client?”
      - lucb1e 7y ago
        That's actually the only feature that has a bug (the rest works flawlessly): when I connect my phone to the internet after I started writing a message, even if I have the chat open and I'm actively typing and internet just connects in the background, then it'll literally erase what I typed so far with no warning or anything. It'll see that the server has no draft or an empty draft or something, and it'll just get rid of my message so far and there is no way of getting it back. Well, to be fair, there is also this other minor bug about encryption being off by default and only available on a few clients and not synchronizing between different encryption-supporting clients...
HashThis 7y ago
The big risk to governments isn't a generic cryptocurrency token. The big risk is a platform used by a huge base of people PUSHING them to be used in the real world. This is the trigger to cause mass adoption. That is the real risk. That is why stopping them is an emergency action.
- kevingadd 7y ago
  Yeah, that absolutely poses a threat to government-controlled fiat currency - but it poses another separate threat that shouldn't be understated: If a company like FB or Telegram becomes in control of a pseudo-currency, now individuals' right to use their currency are under the control of a for-profit corporation. We've seen recently just how bad that can get for people's rights - perhaps even worse than what governments already do. When the US government steals your shit you can at least sue them because there are laws on the books prohibiting it, but is the law going to protect you when Telegram invalidates your tokens? Maybe?
- Obi_Juan_Kenobi 7y ago
  If your 'decentralized' cryptographic currency can be brought down so easily, it deserves to fail. Pre-mines like this are entirely orthogonal to Bitcoin and other legitimately decentralized networks; it's pointless to discuss them as though they were anything alike. Crypto will fail or succeed based entirely upon how useful people find it. That's how it always has been, and always will be.
- H8crilA 7y ago
  This is a security (according to the SEC) that went unregistered. Why can't they just register? With such a huge offering it's not so rich to just pay someone for filling the Form S-1/F-1. It's not like the SEC hates Bitcoin/crypto on principle. Or Elon Musk (I'm referring to the 420 tweet). It just follows the securities law, a law that was established after the 1920s stock market crash and the Great Depression that ensued afterwards. Again, it's not hard to follow the law. Fill the form, call it a day. Or don't fill the form and make sure you're only selling to accredited investors. Also, filling form S-1 will help you getting professional investors on board. A whole lot of them trust the SEC data in Edgar.
Shank 7y ago
I'm really interested in how this plays out. It seems to me like the SEC's argument is that Grams aren't a currency because you cannot currently buy or sell goods with Grams. But the currency hasn't launched yet, and that's the whole point of the injunction I suppose: to stop the currency from launching before it becomes a currency. It also seems to me like this is an effort that's easily circumvented. Wouldn't it be trivial to offer something (such as some fancy badge on a Telegram account) in exchange for Grams, thus giving the currency value? Are there any mechanics at play that could legitimately stop Telegram from launching the blockchain and distributing the tokens to users who aren't from the US?
- deleted 7y ago
  [deleted]
- shkkmo 7y ago
  It doesn't matter whether it is a "currency" or not. > The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others. If that test be satisfied, it is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value. [0] Thus if the ICO's are sold with the expectation that profiting from the purchase of those token depends entirely on Telegram completing work on their network and integrating that network with their app, then the Howey test seems to apply. Telegram currently restricts the sale of the coin (via contracts) and heavily marketed the value coming from "200 millions of Telegram users will get a TON wallet making it the world’s most adopted cryptocurrency". I don't really see how you could see this a not being a security under the Howey test. [0] https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.
- lacker 7y ago
  The question isn’t whether it is a currency or a security, it’s whether it is a commodity or a security. Under US law no cryptocurrencies are currencies. Some like Bitcoin and Ethereum are commodities, some like TON are securities, and most of them are unclear.
H8crilA 7y ago
The SEC does not block such things because it thinks those are overpriced. The SEC does not care about the price. The SEC did not, and should not have blocked WeWork, to take an example. What the SEC requires is a registration of the security with the form S-1/F-1. Nothing more, nothing less. If the paperwork is complete they will greenlight this offering. I don't know why wouldn't they just register. Cut a very tiny percentage of the amount, pay someone to do the paperwork, you can go ahead. But do it with cards on the table, as the securities registration form requires (it's quite extensive and requires, for example, a clear statement of all risks involved in the offering).
- wmf 7y ago
  The time and cost to do an S-1 is massive and it can reveal embarrassing facts that lower the company's valuation, as in the case of WeWork.
  - Animats 7y ago
    It's the "embarrassing facts that lower the company's valuation" that matters for a billion dollar offering. The few hundred thousand dollars of legal costs aren't the issue here.
  - edraferi 7y ago
    Which is, of course, exactly what you want. These rules exist because charlatans bilked a lot of consumers out of a lot of money. The financial industry will do this consistently because the incentives are obvious. There has to be some external force slowing down the fraud.
    - thefounder 7y ago
      >> These rules exist because charlatans bilked a lot of consumers out of a lot of money The rules are made by the "deep state" to serve the establishment. On a more serious note these rules/regulations/processes also deny access to capital to startups. It's not really that easy or cheap to go public on a stock exchange. People should do their due diligence before to invest in stocks anyway, right?
phront 7y ago
Maybe its a silly question but can Telegram just give back $1B to all american participants of the project and continue the process?
- JumpCrisscross 7y ago
  > can Telegram just give back $1B to all american participants of the project and continue the process? That’s called disgorgement of proceeds. There are also usually fines and agreements not to break the rules again. In this case, however, it would be tough to ensure no future buyer of these securities is American. (To say nothing of Telegram having raised U.S. dollars and so falling under U.S. jurisdiction.)
- elchupanebre 7y ago
  No. They already spent a good chunk of it: by Jan 31 2019 they spent $218M (that's a LOT! 200 employees burn no more than $50M a year, hosting maybe another $20M; the rest is probably just taken out by insiders). At that burn rate they likely have spent half a billion by now. Who is going to cover that?
angel_j 7y ago
Do token offering. Raise Millions. Deal with the SEC later.
- wmf 7y ago
  If TON doesn't launch by October 31st they have to return the money and then Telegram will run out of money and go out of business. They only have 20 days to figure it out.
  - ledak 7y ago
    Telegram will not run out of money, Durov has enough money to support it for years.
    - skinnymuch 7y ago
      Some one was saying they spent $200M+ of it already. If that’s true, he can’t afford that easily. He sold his VK stake for $300M 6 years ago. Forbes is saying he’s worth $2.7B, but not saying how. Forbes has been wrong multiple times before on net worth. I’m guessing they are including his Telegram stake and the Telegram crypto value.
treelovinhippie 7y ago
Since there was never a public token sale (as it was all raised privately) they should have just done a debt/equity raise. What was the point in doing an ICO? Though like all of these private token sales, it's a great way for crypto whales to multiply their imaginary wealth without having to exit to fiat and pay taxes.
- shanecoin 7y ago
  To take advantage of the ICO hype. Telegram could never have raised $1.7B in different, more traditional medium.
  - treelovinhippie 7y ago
    I dunno, someone like Softbank would have happily thrown that their way.
    - elchupanebre 7y ago
      It's unlikely that one Ponzi scheme will invest into another.
    - SahAssar 7y ago
      Without any equity and preferred shares? no.
- wmf 7y ago
  The point is that the investors could dump their tokens onto clueless FOMOers on public exchanges. That doesn't work with traditional equity investment (see WeWork IPO).
- elchupanebre 7y ago
  They already raised $1.7B (and spent a good chunk of it, $280M by Jan 31 2019, probably $0.5B by now). Those who gave them money need a grater fool to buy the tokens from them. Otherwise the fun cannot continue. Someone will have to pay. > without having to exit to fiat Last time I checked one cannot buy yachts and private jets for crypto.
democracy 7y ago
Wow, why would anyone care (I am not even talking about exchanging their cash for that crap) about one messenger's virtual currency? I am personally looking forward for an opportunity to invest in Candy Crash Coins and Sim City Dollars and you wanna know why? Because BLOCKCHAIN!
- samtheprogram 7y ago
  Although I don’t know much about the popularity of Telegram, WeChat has a pretty successful payment system, built into a messaging app. Not backed by a cryptocurrency, but it isn’t that far fetched for something like this to gain traction.
- newscracker 7y ago
  There’s still a big market for companies or solutions that make cross border transactions cheap and quick. Conventional banks are far behind and quite expensive. Even companies like Transferwise, InstaRem, Xoom, etc., aren’t the best in all the markets they work in (and they aren’t available everywhere either). Government regulations on cross border transactions matter, but that alone cannot be the reason why current conventional solutions have been so bad for a long time.
  - vkou 7y ago
    Cross-border transactions are quick and cheap, if you value counterparty risk appropriately.
  - democracy 7y ago
    Ha, the cost of an abstract "cross border transaction" is zero. The problems start when you want to cash in and out. At this stage welcome to the real world and appreciate the barriers Western Union/etc need to go through to comply with local AML/anti-terrorists/whatever laws. The "cryptocurrency" technology does not help in this case, that's the one of the crypto-shills agendas: 1. Cross border payments 2. Bank the unbanked 3rd world 3. Means to help for the hyperinflated currencies. 4. Store of value All of them are completely delusional and only work for people who never had to make those payments, know 3rd world from the discovery channel and learn about hyperinflation on CNN.
CosmicShadow 7y ago
Kik is fighting the SEC because of their token Kin, is this a similar issue?
- lacker 7y ago
  Yeah it’s a very similar situation. TLDR, they both started selling the token long before it actually existed, the token being totally controlled by one company, based on promises that they would build stuff later, to mass market US investors. All those are red flags for SEC action.
  - nullc 7y ago
    SEC didn't care when ethereum did exactly that-- created 72 million tokens out of thin air and sold 80% of them to the general public long before any system existed to make use of them.
    - eljee 7y ago
      But mah decentralization
    - lacker 7y ago
      That's true, or at least the SEC doesn't seem likely to go after Ethereum. It's hard to say for sure what exactly the difference is. It seems like the SEC is intentionally not being clear about what they find acceptable and what they find unacceptable. I don't know whether this is because they are just slow about things, or whether they want to keep their options open because why not, or what. It would be nice to have crisp, clear rules about how to create a new token that is considered a commodity in the US.
      - nullc 7y ago
        Or because there is potentially a conflict of interests? It's not too hard to imagine that SEC staffers have an interest in some of the things they're not going after and don't have an interest in things that they are. In particular, it sure seems to me that surprises in SEC enforcement seem oddly correlated with the offerings that I know were really liberal in handing out premined coins to 'advisors'.
kjjknnkn 7y ago
jj
zkid18 7y ago
> According to the SEC’s complaint, Telegram Group Inc. and its wholly-owned subsidiary TON Issuer Inc. began raising capital in January 2018 to finance the companies’ business, including the development of their own blockchain, the “Telegram Open Network” or “TON Blockchain,” as well as the mobile messaging application Telegram Messenger. Defendants sold approximately 2.9 billion digital tokens called “Grams” at discounted prices to 171 initial purchasers worldwide, including more than 1 billion Grams to 39 U.S. purchasers. Telegram promised to deliver the Grams to the initial purchasers upon the launch of its blockchain by no later than October 31, 2019, at which time the purchasers and Telegram will be able to sell billions of Grams into U.S. markets. The complaint alleges that defendants failed to register their offers and sales of Grams, which are securities, in violation of the registration provisions of the Securities Act of 1933. The most interesting thing is that at one time I carefully read the prospectus and noticed that everything was perfectly done there correctly: tokens are issued in addition to certain securities that are issued strictly according to the current legislation, that is, the tokens themselves were NOT sold ... And It was not some former Russian lawyer who wrote the deal, but DLA Piper, one of the top 5 of approximately US legal concerns.
- elchupanebre 7y ago
  > tokens are issued in addition to certain securities Could you please provide a pointer to registration paperwork of those securities? It must exist if they are "issued strictly according to the current legislation". Thanks.
- deleted 7y ago
  [deleted]
deleted 7y ago
[deleted]

323 points by jmsflknr 7y ago

The SEC registration requirements are a blatant violation of the freedom to contract. An individual should decide for themselves whether they will invest in a venture, not have that decision made for them by politicians and opinionated busybodies.

Kinnard 7y ago
How do we realize this freedom in practice though?
- CryptoPunk 7y ago
  Could you elaborate? You mean realize it by how we structure the law? The answer to that is to repeal all statutes not consistent with Common Law and moving forward, depend solely on Common Law, which has long-established principles limiting state overreach and establishing genuine consent.
theamk 7y ago
That's how we ended up with Great Depression. We don't want this to happen again.
- CryptoPunk 7y ago
  The Great Depression had nothing to do with people being free to buy stocks. It was a classic bubble being burst, followed by counter-productive government measures to prevent prices/wages from deflating (which they needed to do as the money supply contracted): https://www.eurekalert.org/pub_releases/2009-08/uoc--hps081909.php https://www.eurekalert.org/pub_releases/2009-08/uoc--hps0819... https://www.wsj.com/articles/SB123353276749137485 https://www.wsj.com/articles/SB123353276749137485
elchupanebre 7y ago
SEC requirement is a side effect of the fact that contracts are enforceable in a court of law.
- CryptoPunk 7y ago
  Every conceivable agreement, written and unwritten, is enforceable in a court of law. By your rationale, this justifies gatekeeping every form of human interaction.
  - elchupanebre 7y ago
    No. Far from it. If you buy cocaine from Colombia your contract won't be enforceable in a court of law.
    - CryptoPunk 7y ago
      I mean everything not prohibited. Your argument now is tautological.
      - elchupanebre 7y ago
        You are still wrong though :) Gambling contracts are legal in a lot of states. They are also generally not enforceable through courts. If my argument is tautological (I think not), yours is just factually wrong :)
        CryptoPunk 7y ago
        Can you give an example of a legal gambling contract that is unenforceable in court, and provide a source? >>If my argument is tautological (I think not), yours is just factually wrong :) At least you're admitting you were making a tautological argument.

emilfihlman 7y ago

Does Telegram have assets in the USA to stop or otherwise punish them? I don't see how the SEC could otherwise do anything about it.

RcouF1uZ4gsC 7y ago
The USA, especially in the area of financial regulations has a very, very long reach.
- csours 7y ago
  I agree. Basically if you use US Dollars then US regulators consider you under their jurisdiction, because they can stop you from using US Dollars by limiting other entities (banks, payment processors) dealings with you.
- ttsda 7y ago
  Telegram as a corporation seems very determined to evade that reach, and appears to have the resources to pull it off.
  - emilfihlman 7y ago
    Exactly this. Given how they have evaded Russia for a long time now, Murica must have something else in their assets to exert control over them.
    - RcouF1uZ4gsC 7y ago
      Basically to evade American reach, you need to have support from Russia and/or China. If you don't have that support, you are going to have a very hard time.
      - threeseed 7y ago
        And Russia and China are hardly the type of countries who are keen to support a secure messaging platform.

RcouF1uZ4gsC 7y ago

Before, a lot of token offerings could skate under the radar. That day is over, and the SEC is cracking down. Anyone offering anything close to a token would be well served talking to a lawyer experienced in securities law.

snagglegaggle 7y ago
I've always been kind of confused as to how the SEC has jurisdiction on this. The Telegram tokens don't appear to be a stake in the company and rather seem to be similar to a PayPal account balance. Companies can effectively issue money via coupons or redeemable certificates. In the case of coupons there is some law about requiring them to have a marked cash value. EDIT: Though it will prompt more downvotes -- explain them when downvoting, thanks.
- DiogenesKynikos 7y ago
  From the SEC's filing: > Grams are securities because the Initial Purchasers and subsequent investors expect to profit from Telegram’s work: the development of a TON “ecosystem,” integration with Messenger, and implementation of the new TON Blockchain. Grams are not a currency because, among other things, there are not any products or services that can be purchased with Grams. Rather, there is an expectation on the part of investors that they will profit if Telegram builds out the functionalities it has promised. It continues: > The definition of a “security” includes a wide range of investment vehicles, including “investment contracts.” Investment contracts are instruments through which an individual invests money in a common enterprise and reasonably expects profits or returns derived from the entrepreneurial or managerial efforts of others. In a variety of circumstances, courts have found that novel or unique investment vehicles constitute investment contracts, including interests in orange groves, animal breeding programs, railroads, airplanes, mobile phones, and enterprises existing only on the Internet. As the U.S. Supreme Court has noted, Congress defined “security” broadly to embody a “flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.”

helpPeople 7y ago

Give it 30 years and Africa will be the future of banking and medicine. Free from the burdens of establishment regulations. I worry we are losing our competitiveness.

PunchTornado 7y ago

> “We have repeatedly stated that issuers cannot 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. “Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.” I agree.

aey 7y ago

This isn’t a block on another telegram’s sale, but on their launch. Telegram filed an exemption for their original sale, and have been compliant with the SEC. https://www.sec.gov/Archives/edgar/data/1729650/000095017218000060/xslFormDX01/primary_doc.xml https://www.sec.gov/Archives/edgar/data/1729650/000095017218... What this action threatens is the SAFT model. It’s not clear what steps TG needs to take to disassociate themselves from the launch such that TON is decentralized and no longer a security. Or if they need to file a reg-a or s-1 before launch. [edit for clarity]

dang 7y ago
The title states flatly that they're halting the offering. Is that inaccurate? What's the distinction here? If the title is misleading, the practice on HN is to replace it with a better (i.e. accurate and neutral) one, as described at https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html.
- aey 7y ago
  Offering is any time the token is issued, like on launch. The word is misleading since TG is not doing another sale. They actually complied with SEC during the sale. This is the launch which requires the tokens to be liquid for the network to function. My guess is that TG will file for a reg-a like blockstack.
  - elliekelly 7y ago
    > Offering is any time the token is issued, like on launch. The Securities Act defines “offer” to include any attempt to dispose of a security for value. In order for anyone - Telegram or Joe Schmoe Gram investor - to “offer” a security it needs to be either (1) registered or (2) exempt from registration. Since Telegram filed Form D and the SEC has brought charges alleging an unregistered offering it would seem the SEC does not agree that the ICO was exempt and so Telegram was not in compliance with federal securities laws. But even if the ICO were by some miracle exempt, without a registration statement the securities can’t be offered for sale to the public - regardless of whether they were new issues directly from Telegram or existing securities being offered for sale in Telegram’s new marketplace by Telegram users.

ttul 7y ago

This is great. Telegram's token offering was a gigantic scam. Does anyone really believe their tokens are worth $1.7B anymore?

ainar-g 7y ago
Which is honestly a shame, because Telegram the messenger is freaking amazing. Probably the best instant messaging experience of my whole life. If only Pavel “Pashka” Durov decided to fund the company with something less scammy. Like a premium version with VPN and maybe some additional features like even bigger file uploads. I would be among the first clients.
- m12k 7y ago
  It's the only IM app that does notifications right. I get a message and 'unread messages' notifications pop up on both my computers and my phone - the moment I click to focus the app on one of them, the notifications on the other computer and phone go away. With other apps it seems there's always a risk that a notification marker is just a leftover from before that they forgot to clear - that's never the case with Telegram.
  - ainar-g 7y ago
    Don't forget about drafts being synced between devices. I remember the first time I've noticed that: “Wait, didn't I write this on my phone? Why is this in my desktop client?”
    - lucb1e 7y ago
      That's actually the only feature that has a bug (the rest works flawlessly): when I connect my phone to the internet after I started writing a message, even if I have the chat open and I'm actively typing and internet just connects in the background, then it'll literally erase what I typed so far with no warning or anything. It'll see that the server has no draft or an empty draft or something, and it'll just get rid of my message so far and there is no way of getting it back. Well, to be fair, there is also this other minor bug about encryption being off by default and only available on a few clients and not synchronizing between different encryption-supporting clients...

HashThis 7y ago

The big risk to governments isn't a generic cryptocurrency token. The big risk is a platform used by a huge base of people PUSHING them to be used in the real world. This is the trigger to cause mass adoption. That is the real risk. That is why stopping them is an emergency action.

kevingadd 7y ago
Yeah, that absolutely poses a threat to government-controlled fiat currency - but it poses another separate threat that shouldn't be understated: If a company like FB or Telegram becomes in control of a pseudo-currency, now individuals' right to use their currency are under the control of a for-profit corporation. We've seen recently just how bad that can get for people's rights - perhaps even worse than what governments already do. When the US government steals your shit you can at least sue them because there are laws on the books prohibiting it, but is the law going to protect you when Telegram invalidates your tokens? Maybe?
Obi_Juan_Kenobi 7y ago
If your 'decentralized' cryptographic currency can be brought down so easily, it deserves to fail. Pre-mines like this are entirely orthogonal to Bitcoin and other legitimately decentralized networks; it's pointless to discuss them as though they were anything alike. Crypto will fail or succeed based entirely upon how useful people find it. That's how it always has been, and always will be.
H8crilA 7y ago
This is a security (according to the SEC) that went unregistered. Why can't they just register? With such a huge offering it's not so rich to just pay someone for filling the Form S-1/F-1. It's not like the SEC hates Bitcoin/crypto on principle. Or Elon Musk (I'm referring to the 420 tweet). It just follows the securities law, a law that was established after the 1920s stock market crash and the Great Depression that ensued afterwards. Again, it's not hard to follow the law. Fill the form, call it a day. Or don't fill the form and make sure you're only selling to accredited investors. Also, filling form S-1 will help you getting professional investors on board. A whole lot of them trust the SEC data in Edgar.

Shank 7y ago

I'm really interested in how this plays out. It seems to me like the SEC's argument is that Grams aren't a currency because you cannot currently buy or sell goods with Grams. But the currency hasn't launched yet, and that's the whole point of the injunction I suppose: to stop the currency from launching before it becomes a currency. It also seems to me like this is an effort that's easily circumvented. Wouldn't it be trivial to offer something (such as some fancy badge on a Telegram account) in exchange for Grams, thus giving the currency value? Are there any mechanics at play that could legitimately stop Telegram from launching the blockchain and distributing the tokens to users who aren't from the US?

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shkkmo 7y ago
It doesn't matter whether it is a "currency" or not. > The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others. If that test be satisfied, it is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value. [0] Thus if the ICO's are sold with the expectation that profiting from the purchase of those token depends entirely on Telegram completing work on their network and integrating that network with their app, then the Howey test seems to apply. Telegram currently restricts the sale of the coin (via contracts) and heavily marketed the value coming from "200 millions of Telegram users will get a TON wallet making it the world’s most adopted cryptocurrency". I don't really see how you could see this a not being a security under the Howey test. [0] https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.
lacker 7y ago
The question isn’t whether it is a currency or a security, it’s whether it is a commodity or a security. Under US law no cryptocurrencies are currencies. Some like Bitcoin and Ethereum are commodities, some like TON are securities, and most of them are unclear.

H8crilA 7y ago

The SEC does not block such things because it thinks those are overpriced. The SEC does not care about the price. The SEC did not, and should not have blocked WeWork, to take an example. What the SEC requires is a registration of the security with the form S-1/F-1. Nothing more, nothing less. If the paperwork is complete they will greenlight this offering. I don't know why wouldn't they just register. Cut a very tiny percentage of the amount, pay someone to do the paperwork, you can go ahead. But do it with cards on the table, as the securities registration form requires (it's quite extensive and requires, for example, a clear statement of all risks involved in the offering).

wmf 7y ago
The time and cost to do an S-1 is massive and it can reveal embarrassing facts that lower the company's valuation, as in the case of WeWork.
- Animats 7y ago
  It's the "embarrassing facts that lower the company's valuation" that matters for a billion dollar offering. The few hundred thousand dollars of legal costs aren't the issue here.
- edraferi 7y ago
  Which is, of course, exactly what you want. These rules exist because charlatans bilked a lot of consumers out of a lot of money. The financial industry will do this consistently because the incentives are obvious. There has to be some external force slowing down the fraud.
  - thefounder 7y ago
    >> These rules exist because charlatans bilked a lot of consumers out of a lot of money The rules are made by the "deep state" to serve the establishment. On a more serious note these rules/regulations/processes also deny access to capital to startups. It's not really that easy or cheap to go public on a stock exchange. People should do their due diligence before to invest in stocks anyway, right?

phront 7y ago

Maybe its a silly question but can Telegram just give back $1B to all american participants of the project and continue the process?

JumpCrisscross 7y ago
> can Telegram just give back $1B to all american participants of the project and continue the process? That’s called disgorgement of proceeds. There are also usually fines and agreements not to break the rules again. In this case, however, it would be tough to ensure no future buyer of these securities is American. (To say nothing of Telegram having raised U.S. dollars and so falling under U.S. jurisdiction.)
elchupanebre 7y ago
No. They already spent a good chunk of it: by Jan 31 2019 they spent $218M (that's a LOT! 200 employees burn no more than $50M a year, hosting maybe another $20M; the rest is probably just taken out by insiders). At that burn rate they likely have spent half a billion by now. Who is going to cover that?

angel_j 7y ago

Do token offering. Raise Millions. Deal with the SEC later.

wmf 7y ago
If TON doesn't launch by October 31st they have to return the money and then Telegram will run out of money and go out of business. They only have 20 days to figure it out.
- ledak 7y ago
  Telegram will not run out of money, Durov has enough money to support it for years.
  - skinnymuch 7y ago
    Some one was saying they spent $200M+ of it already. If that’s true, he can’t afford that easily. He sold his VK stake for $300M 6 years ago. Forbes is saying he’s worth $2.7B, but not saying how. Forbes has been wrong multiple times before on net worth. I’m guessing they are including his Telegram stake and the Telegram crypto value.

treelovinhippie 7y ago

Since there was never a public token sale (as it was all raised privately) they should have just done a debt/equity raise. What was the point in doing an ICO? Though like all of these private token sales, it's a great way for crypto whales to multiply their imaginary wealth without having to exit to fiat and pay taxes.

shanecoin 7y ago
To take advantage of the ICO hype. Telegram could never have raised $1.7B in different, more traditional medium.
- treelovinhippie 7y ago
  I dunno, someone like Softbank would have happily thrown that their way.
  - elchupanebre 7y ago
    It's unlikely that one Ponzi scheme will invest into another.
  - SahAssar 7y ago
    Without any equity and preferred shares? no.
wmf 7y ago
The point is that the investors could dump their tokens onto clueless FOMOers on public exchanges. That doesn't work with traditional equity investment (see WeWork IPO).
elchupanebre 7y ago
They already raised $1.7B (and spent a good chunk of it, $280M by Jan 31 2019, probably $0.5B by now). Those who gave them money need a grater fool to buy the tokens from them. Otherwise the fun cannot continue. Someone will have to pay. > without having to exit to fiat Last time I checked one cannot buy yachts and private jets for crypto.

democracy 7y ago

Wow, why would anyone care (I am not even talking about exchanging their cash for that crap) about one messenger's virtual currency? I am personally looking forward for an opportunity to invest in Candy Crash Coins and Sim City Dollars and you wanna know why? Because BLOCKCHAIN!

samtheprogram 7y ago
Although I don’t know much about the popularity of Telegram, WeChat has a pretty successful payment system, built into a messaging app. Not backed by a cryptocurrency, but it isn’t that far fetched for something like this to gain traction.
newscracker 7y ago
There’s still a big market for companies or solutions that make cross border transactions cheap and quick. Conventional banks are far behind and quite expensive. Even companies like Transferwise, InstaRem, Xoom, etc., aren’t the best in all the markets they work in (and they aren’t available everywhere either). Government regulations on cross border transactions matter, but that alone cannot be the reason why current conventional solutions have been so bad for a long time.
- vkou 7y ago
  Cross-border transactions are quick and cheap, if you value counterparty risk appropriately.
- democracy 7y ago
  Ha, the cost of an abstract "cross border transaction" is zero. The problems start when you want to cash in and out. At this stage welcome to the real world and appreciate the barriers Western Union/etc need to go through to comply with local AML/anti-terrorists/whatever laws. The "cryptocurrency" technology does not help in this case, that's the one of the crypto-shills agendas: 1. Cross border payments 2. Bank the unbanked 3rd world 3. Means to help for the hyperinflated currencies. 4. Store of value All of them are completely delusional and only work for people who never had to make those payments, know 3rd world from the discovery channel and learn about hyperinflation on CNN.

CosmicShadow 7y ago

Kik is fighting the SEC because of their token Kin, is this a similar issue?

lacker 7y ago
Yeah it’s a very similar situation. TLDR, they both started selling the token long before it actually existed, the token being totally controlled by one company, based on promises that they would build stuff later, to mass market US investors. All those are red flags for SEC action.
- nullc 7y ago
  SEC didn't care when ethereum did exactly that-- created 72 million tokens out of thin air and sold 80% of them to the general public long before any system existed to make use of them.
  - eljee 7y ago
    But mah decentralization
  - lacker 7y ago
    That's true, or at least the SEC doesn't seem likely to go after Ethereum. It's hard to say for sure what exactly the difference is. It seems like the SEC is intentionally not being clear about what they find acceptable and what they find unacceptable. I don't know whether this is because they are just slow about things, or whether they want to keep their options open because why not, or what. It would be nice to have crisp, clear rules about how to create a new token that is considered a commodity in the US.
    - nullc 7y ago
      Or because there is potentially a conflict of interests? It's not too hard to imagine that SEC staffers have an interest in some of the things they're not going after and don't have an interest in things that they are. In particular, it sure seems to me that surprises in SEC enforcement seem oddly correlated with the offerings that I know were really liberal in handing out premined coins to 'advisors'.

kjjknnkn 7y ago

zkid18 7y ago

> According to the SEC’s complaint, Telegram Group Inc. and its wholly-owned subsidiary TON Issuer Inc. began raising capital in January 2018 to finance the companies’ business, including the development of their own blockchain, the “Telegram Open Network” or “TON Blockchain,” as well as the mobile messaging application Telegram Messenger. Defendants sold approximately 2.9 billion digital tokens called “Grams” at discounted prices to 171 initial purchasers worldwide, including more than 1 billion Grams to 39 U.S. purchasers. Telegram promised to deliver the Grams to the initial purchasers upon the launch of its blockchain by no later than October 31, 2019, at which time the purchasers and Telegram will be able to sell billions of Grams into U.S. markets. The complaint alleges that defendants failed to register their offers and sales of Grams, which are securities, in violation of the registration provisions of the Securities Act of 1933. The most interesting thing is that at one time I carefully read the prospectus and noticed that everything was perfectly done there correctly: tokens are issued in addition to certain securities that are issued strictly according to the current legislation, that is, the tokens themselves were NOT sold ... And It was not some former Russian lawyer who wrote the deal, but DLA Piper, one of the top 5 of approximately US legal concerns.

elchupanebre 7y ago
> tokens are issued in addition to certain securities Could you please provide a pointer to registration paperwork of those securities? It must exist if they are "issued strictly according to the current legislation". Thanks.
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