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Telegram Loses Legal Battle with American Securities Commission
One of the many features of blockchain, is the ability to crowdfund on a mass scale. The cryptocurrency community experienced this first hand in 2017. Many companies launched their own because of how much money was flowing in the world of cryptocurrency. The hope was that the market would carry their token to ultra high prices, turning a quick profit. Telegram is a company that has earned their spot in the crypto community as a safe, encrypted messaging app. In 2018, Telegram conducted an initial coin offering (ICO), which is simply a public sale of tokens. During this sale they raised $1.7 billion dollars. This caught the attention of American regulatory bodies, which swiftly launched a lawsuit for illegally conducting the sale of securities.
The Securities and Exchange Commission
When a company wants to sell shares to their company on the public market, it’s the SEC that gives the approval. If no permission is given by the SEC, then the company that conducted is subject to legal action. In the worst case scenario, the process of being sued could cause irreparable harm to the company, causing a permanent closure. The entire purpose of the SEC, is to protect the investor. When a company like Telegram sells tokens, the SEC needs to determine whether or not the tokens fall into the category of being a “security”.
What is a Security?
At its core, securities are tradable financial assets, like stocks. Do not get confused with the kind of security that you hire at a concert or event to protect the crowd. These are two totally different definitions for the same word; the name is definitely confusing! The SEC typically applies a simple four step test to determine whether or not a token or asset is a security. This is called the Howie Test. The asset is a security if:
- A monetary investment is made
- Where there is an expectation of profit
- The investment is in a common enterprise
- Where the profits are coming from the effort of others
The Telegram ICO Lawsuit
The two year legal battle for the right to sell Telegrams token “TON” came to a close on May 8th, 2020. After raising $1.7 Billion dollars from investors, the SEC ordered Telegram to cease any further sales, and return all funds. Telegram intended on deploying a blockchain network that would allow anyone with a smartphone to obtain and use cryptocurrency. Telegram has a global user base of 400 million individuals, and countless bots operating on the network. Their product is a free messaging app that enables encrypted conversations to and from your contacts. The integration of Telegram’s cryptocurrency TON into the network would allow the instant, and seamless transfer of value between 400 million people. The only other project that comes close to this sort of scale, is Facebook’s project Libra. Telegram is now offering to return 110% of the funds back to investors.
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