The District Court f the Southern District of New Y k has ruled in fav of the SEC, denying the request by Telegram to allow the messaging giant to distribute its GRAM tokens to non-US invest s.
After several days of back and f th, during which the cryptocurrency community speculated regarding the potential outcome of the conflict, the court der gets in line with the SEC’s key arguments. The rejection centered around the same claims that supp ted the preliminary injunction, including whether Telegram could flood United States markets with billions of Grams and if the token itself is a “security” and, if so, would the planned distribution violate the federal securities laws.
The judge also stressed that the entire scheme that comprised the purchase agreements and Telegram’s subsequent actions are the central points of the court’s opinion and der, not only the initial buyers Gram distribution. The court also finds that the resale of Grams into the secondary public market would be an integral part of the scheme that involves US purchasers and thus likely to satisfy M rison’s transactional test.
The SEC alleges that Telegram has taken steps to complete a public distribution of Grams with the initial invest s serving merely as middlemen distribut s of Gpublicneral public.
Too late to challenge, says court
As per the court’s filing, Telegram proposed f the first time to apply safeguards to avert involving US retail invest s when early token holders decide to resale their Grams in the futursuggested imposingsted to impose contractual prohibitions to current purchasers and configuring the TON wallet to preclude US-based addresses.
There are several problems with this proposal, said the court. First, Telegram didn’t examine the legality of its proposed restrictions given the purchase agreements were actually signed two years ago. Second, these limitations go against TON Blockchain’s granted anonymity to Grams buyers and sellers.
“Theref e, any restriction as to whom a f eign Initial Purchaser could resell Grams would be of doubtful real-w ld enf ceability. As to the TON Wallet, Telegram maintains that the TON Wallet is distinct from the TON Blockchain and is a useful but non-essential feature, ” it concludes.
Finally, the court has denied Telegram’s request f clarification, adding that the SEC’s overarching arguments and ban scope were known to Telegram since October 11, 2019. Despite that, Telegram, until last week, didn’t oppose the f m of the injunction and never cited the M rison case.
The language, including a prohibition on “delivering Grams to any person entity taking any other steps to effect any unregistered offer sale of Grams, ” has been in the SEC’s motion since its inception, ” it further explains.
Citing the Supreme Court’s decision on the extraterrit ial application of the US federal securities law, Telegram said over 70% of its ICO funds was raised through Purchase Agreements with f eign invest s. Under this reasoning, Gram issuer has once again questioned the SEC’s oversight auth ity since it has entered into these agreements with non-US parties outside of the United States through contracts containing f eign choice-of-law provisions.