A Blow on Telegram: Is Court Prohibition Loss to SEC for Pavel Durov’s Project?


March 24, the New York Southern District Court has preliminarily halted the transfer of Gram tokens to the primary investors of TON. Thus, the court ruled in favor of the U.S. SEC and recognized Gram non-registered security.

Telegram is entitled to make an appeal. Still, in the case TON is not launched by April 30, the primary investors will have the right to demand their investment back.

Is this court order to refrain from issuing Gram tokens a final blow on Telegram Open Network? Will the possible need to refund the primary investors become critical for the project? ForkLog talked with various experts to find out what they think.

The founder of crypto-exchange Garantex Sergei Mendeleev believes that the court ruling might affect the entire finch market.

“The SEC is a critical blow on the whole market of financial technologies, IT investors, and enthusiasts who used to be involved in the development of the crypto-market. Even though it’s just about one national regulator, this ruling effectively covers the entire world as the SEC has no borders as we know them. If you sell just one token to a U.S. national in Burkina-Faso, the SEC will haunt you.

“The prohibition is as good as final. The question is not whether the project survives but whether Pavel Durov’s team is capable of going through this ordeal. This depends on the final ruling and fines, on top of the refund to the investors.”

Telegram opted to file an appeal. Philip Moustakis, counsel at Seward & Kissel LLP and former SEC counsel, told Cointelegraph that Pavel Durov’s lawyers will have to prove that the court has misinterpreted the law if they want to win.

“The standard of review on appeal is an abuse of discretion—it’s a high bar—meaning Telegram will have to show the district court made some clear mistake of fact or an error of law.”

Alexei Kirienko, the managing partner at Exante, also seems to think the chances to win the appeal are thin for the Telegram’s lawyers.

“The story will end in the Telegram team refunding the investors but I believe that Pavel will use every possible option to have the project running. In any case, the lesson of TON is very valuable for the industry. It has shown the importance of decentralization to everyone who might have doubts.”

The CEO of Xena.Exchange Anton Kravchenko believes that while the Telegram team is likely to lose the case, it will not result in any dramatic consequences.

“It should be noted that TON did not misguide the investors or scam them. The investor knew about all conditions and risks and agreed for the transaction voluntarily. By selling the tokens, TON made its best to comply with the regulator’s demands, filled in the REG_D, limited the investors only to pros, and provided all disclaimers. Other U.S.-based blockchain projects supported TON and tried to explain to the SEC that they can harm the whole industry.

“It all will likely end either in the refund or in a fine. The SEC loves imposing fines and I believe that this story will just end in one, and TON will be able to move on.”

Mansur Guseinov, an independent expert, believes that the SEC might be just taking its time to weigh on the decision.

“Probably, the delay is caused by the need to develop a uniform approach to all similar projects. TON’s tokensale wasn’t the only one, it just was big. The American market is very important to Telegram, it’s an enormous market. So if they have to make a refund, it will have to be frozen.”

Roman Yankovski, a counsel at IP/IT company Tomashevskaya & Partners and the professor at Moscow Digital School thinks that we may not see the final decision for a long while.

“The prohibition is temporary, it can be challenged, and it’s not the final decision. There might not even be one because the SEC often settles such matters amicably. I want to believe that the parties will eventually find some common ground here.

“But of course, it looks like Telegram will lose. We can see it from the court’s position who agreed with all arguments of the Commission. Durov will likely have to refund some investors while, as we know, he had spent nearly one-third of the funds on development. It’s a question, whether the company could survive the final ruling. It’s unlikely that Telegram will be evading it out of fear of the U.S. justice.”

Finally, Alexei Markov, the leading trader at United Traders, offered a very pessimistic view on the situation.

“I think this is the end. There will be appeals and hearings but we will never see TON in the form we all expected it to be in. The best-case scenario is where Durov keeps his promise and refunds the investors but here it’s not quite clear how they will support the infrastructure. After all, the Western market is very important to the project, and it has nothing to do with the messenger.”

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