Telegram’s $1.7 billion 2018 fundraising effort hit a major hurdle today when a federal judge in New York issued a preliminary injunction finding that the distribution of the “GRAM” token would violate U.S. securities laws. Notably, the Court ruled that “given the economic realities under the Howey test,

The Court finds that, in the context of that scheme, the resale of Grams in the secondary public market would be an integral part of the sale of securities without a required registration statement." Applying the well-established test howey  Considering the facts and circumstances of the fundraising effort, the Court further found that “reasonable purchasers would not be willing to pay $1.7 billion to acquire Grams merely as a means of storing or transferring value.

No products found.

Telegram continues without giving foot with ball

GRAM tokens were offered in a so-called SAFT document, or “Simple Agreement for Future Tokens.” The concept was that while the SAFT was itself an investment contract and a security, future tokens when offered for use on a functioning network would not be. This is the first major federal court decision to look at this issue and if other courts follow suit, it may create significant hurdles for other SAFT issuers.

In conclusion, the Court considers that the SEC has shown a substantial probability of success when proving that the Gram. Telegram's Implied Commitments and Understandings to Initial Buyers. Including the anticipated, expected resale of Grams in a public market, they amount to the distribution of securities, which requires compliance with section 5. Telegram has not been able to establish an exemption to the registration requirement under section 4 (a) (2) or Rule 506 (c). Furthermore, the Court concludes that the SEC has demonstrated that the sale and delivery of Grams represent a continuing violation of section 5. 

While a preliminary injunction is not a * final * order or ends the case. It is a significant milestone and suggests that the Court is likely to eventually establish a permanent injunction as well. While appeal review is possible at this particular juncture. It can generally only be taken with permission, which this observer does not believe is likely to happen.