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At Least 10 Telegram Investors Say They Want Refunds from 2018 ICO

Telegram Inc., the company behind the famous messaging app, is up to a tough year as it continues its legal battle with the SEC over its 2018 ICO. Earlier this week, a U.S. Federal court ruled in favor of a temporary restraining order against Telegram, prohibiting it from issuing the tokens it sold to “accredited investors” back in 2018. 

While the ruling was effectively an extension of a temporary restraining order the SEC requested two years ago, it marked an important milestone in the Commission’s legal battle with Telegram. The United States’ main market watchdog filed a lawsuit against Telegram in 2019 for engaging in the sale of securities without proper authorization from the SEC. 

The Commission claimed that Gram tokens, the native cryptocurrency of Telegram’s blockchain network TON, were not a commodity and met several criteria for securities. 

This week, U.S. District Judge Kevin Castel affirmed the SEC’s motion, saying that the Commission demonstrated a plausible cause that Telegram’s Gram tokens violated the U.S. securities law. Judge Castel said that according to the Howey Test, a method used to determine whether something constitutes a security or not, Grams could be considered securities. 

He explained that Telegram must have known that the 2.9 billion tokens it sold to 175 investors would be resold on a secondary public market. Telegram, on the other hand, claims that the $1.7 billion worth tokens it sold were intended as a store of value and would not be used for speculation.

While few believed that Telegram would be able to defend its case against the SEC, this week’s ruling marks an important precedent in the trial. Namely, the purchase agreement in Telegram’s ICO stated that if the Telegram Open Network (TON), the company’s blockchain platform, doesn’t launch until Apr. 30, 2020, investors will be entitled to a refund. 

As the restraining order against Telegram makes this deadline impossible, the question arose of what the company would do if its investors began asking for their money back. 

Yakov Barinsky, the head of Russian crypto investment firm Hash CIB, claims that this time has already come. In an interview with local news outlet TASS, Barinsky said that many are ready to count their losses and leave the TON project behind. 

“What I see now among various investors is that many, at least 10 investors with whom I spoke, are inclined to take away 72% of the invested funds,” he told reporters. 

The 72% refund is less than what investors were offered in October last year, when Pavel Durov, the co-founder of Telegram, invited them to take back 77% of the invested funds or agree to an extension until Apr. 20, 2020.

The current market situation, however, means that investors will most likely be more inclined to take their money back, Barinsky said.

“Considering what is happening in the financial markets, this offer now looks much better than it did in October.”

While Durov promised investors in October that 5% of the $1.7 billion raised will be used to further develop TON, the effort that was put into the blockchain now seems futile. Barinsky said that TON can now process transactions on the blockchain, which means that it will be much harder to prove that the Gram tokens used to facilitate the transactions were not securities. 

However, the millions of dollars funneled into TON still haven’t made it operational. Barinsky said that such complex systems require at least a year of preparation following the ICO, which means that Telegram’s Apr. 30 deadline was “almost impossible” to meet.

The TON community is considering launching the token regardless of the SEC since it’s an open-source decentralized solution, but the founders are inclined to reach a settlement with the SEC like EOS.

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