Telegram to pay US SEC fine of USD 18.5mn over digital token charges

The settlement announced over the weekend comes after Telegram in May announced its decision to withdraw its cryptocurrency-focused subsidiary, Telegram Open Network (TON), due to problems it faced as a result of the US SEC scrutiny.

Telegram engineers had been working on the blockchain platform called TON and a cryptocurrency they were going to name Gram for the past two-and-a-half years.

On October 11, 2019, the SEC filed a complaint against Telegram, alleging that the company had raised capital to finance its business by selling approximately 2.9 billion Grams to 171 initial purchasers worldwide.

The SEC sought to preliminarily enjoin Telegram from delivering the Grams it sold, which the regulator alleged were securities that had been offered and sold in violation of the registration requirements of the federal securities laws.

On March 24, 2020, the US District Court for the Southern District of New York issued a preliminary injunction barring the delivery of Grams and finding that the SEC had shown a substantial likelihood of proving that Telegram's sales were part of a larger scheme to unlawfully distribute the Grams to the secondary public market.

"New and innovative businesses are welcome to participate in our capital markets but they cannot do so in violation of the registration requirements of the federal securities laws," Kristina Littman, Chief of the SEC Enforcement Division's Cyber Unit, said in a statement.

"This settlement requires Telegram to return funds to investors, imposes a significant penalty, and requires Telegram to give notice of future digital offerings."

Telegram Founder and CEO Pavel Durov said in May that "a US court stopped TON from happening".

Durov urged others to keep fighting for decentralisation, balance and equality in the world.

"You are fighting the right battle. This battle may well be the most important battle of our generation. We hope that you succeed where we have failed," he said.