SEC Asks for Telegram Banking Data as New Evidence Emerges

Once again, the Securities and Exchange Commission is asking Telegram to provide bank records on its initial coin offer (ICO) of Gram. The timing of the application, submitted on January 10, coincides with new evidence of alleged underwriters requesting commission fees for Telegram tokens sale.

The reappearance of a previous request

The banking data request comes 4 days after a similar filing was rejected “without prejudice” which means the SEC was free to try again. Telegram opposed the appeal, claiming that doing so would constitute a breach of international data privacy laws. The commission sought to refute this argument by citing previous cases. Noting that in U.S. federal cases foreign data protection obligations were rarely an obstacle to deposits.

Philip Moustakis, Seward & Kissel LLP attorney and former SEC counsel, said in a conversation. That he believes the court will eventually require Telegram to turn over the bank records that the SEC is looking for. In its request, the commission explained that it is seeking to obtain bank records to understand how Telegram spent its ICO funds.

There is no doubt that bank records from Telegram are of critical relevance to this litigation. Defendants are right that Howey is mandating an objective test to determine whether investors in Grams had reasonable expectations of their purchase profits. But it is equally true that post-investment actions by the parties‘ can serve as evidence’ of the parties’ expectations.

Moustakis continued to explain that there was a conflict between Telegram and the SEC over the presence of these documents. Saying Discovery conflicts only gets to the courts when there is a problem. He explained that the final resolution of the issue of these bank records might well happen outside the court between the two parties.

In Oct. 2019, the SEC started action against the $1.7 billion ICO for Telegram. The commission claims that the token offering was an unregistered security transaction. Although Telegram insists that, due to several legal details, it was excluded from registration.

Evidence of commission-based sales

Documents obtained show that on the same day as the bank record question, the commission submitted previously unseen facts. The evidence shows two third-party firms invoicing Telegram to foreign investors for payments resulting from the Gram token sales. If confirmed, this evidence would mean that these companies acted as the ICO’s underwriters as a clear sign of a security offer.

How the SEC received those documents is unclear. While not specifically quoted in the bank records request, they may have emboldened the commission to move the case forward. The lawsuit charges Telegram has previously shown a lack of good faith in the process of discovery. Which it claims “may weigh in favor of the SEC.”

The lawyers cited an Oct. 2019 application for all third-party agreements relating to the blockchain Telegram Open Network (TON). Which were created only on the day of filing on Jan. 10. While there is no sign of when the court will convene on the case. It is likely the litigation will continue to progress. Telegram, meanwhile, remains unable to launch the TON blockchain, delaying what had already been considered a late start.


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