The popular encrypted messaging application Telegram won’t be able to issue its GRAM tokens, for now. This becomes clear as a US District Court granted an injunction against the company in its lawsuit filed by the Securities and Exchange Commission (SEC).
Howey Test Positive: GRAM Are Securities
Telegram’s GRAM sale has been officially halted following a lawsuit filed by the US Securities and Exchange Commission. According to a document issued by a United States District Court on March 24, the SEC sees its request for a preliminary injunction granted.
Per the filing, the court finds that the resale of grams into the secondary public market would be an “integral part of the sale of securities without a required registration statement.” This is because GRAM has been categorized as a security token under the Howey Test.
The court finds that the SEC has shown a substantial likelihood of success in proving that the contracts and understandings at issue, including the sale of 2.9 billion Grams to 175 purchasers in exchange for $1.7 billion, are part of a larger scheme to distribute those Grams into a secondary public market, which would be supported by Telegram’s ongoing efforts. – Reads the document.
An Ongoing Clash
It all began last year when the SEC temporarily halted the sale of Telegram’s cryptocurrency. The main reason, as stated above, was that the sale was considered to be unregistered under existing regulations and it fails to comply with them.
Speaking on the matter was Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, who noted:
Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold.
Later on, the SEC filed a motion for Telegram to reveal its financial records. However, the New York Court ruled against it. Yet, the company had to prove that its banking records comply with the established legislation.
The turning point appears to have been when the SEC revealed internal Telegram correspondence, suggesting that GRAM is, indeed, security.
As a response, one of the exchanges that were carrying out the sale, Liquid, canceled it and pledged to refund investors who took part.