SEC vs TON: What Blockchain Association Involvement Means

News and Analysis

Telegram has been litigating with the SEC for a while now. The main question of the case is whether the sale of Gram tokens by Telegram’s TON platform is a transaction of securities. Whatever the court ruling will be, it is likely to create a significant precedent for the entire crypto-industry to deal with. 

In the recent few days, at least two blockchain-focused advocacy groups addressed the federal court in New York to provide their expertise and try to aid Telegram in their fight, CoinDesk reports.

One of the documents in question was the amicus curiae brief by the Chamber of Digital Commerce, a trade association representing the digital asset and blockchain industry.

The Chamber called for “a clear legal distinction between a transaction determined to be an investment contract and the digital asset that is the subject of the investment contract.” They argued that without this line the industry participants “may not be able to develop or use blockchain technology without unintentionally triggering the U.S. federal securities laws every time a digital asset is used as part of their network.” 

Another important move from the crypto-industry stakeholders was the similar brief filed by the Blockchain Association, an advocacy group formed by big crypto-companies including Coinbase, Circle, 0x, Ripple.

The Blockchain Association urged the SEC to refrain from blocking “a long-planned, highly anticipated product launch by interfering with a contract between sophisticated private parties” and stressed that the blocking would “needlessly harm the investors that securities laws were designed to protect.”

“Telegram discussed its plans with SEC staff for a year and a half, provided copious information and responded to limited feedback by adjusting the design of its transaction. Yet, at the end, the SEC has sued, and the SEC’s briefs thus far say nothing about the substance of those discussions,” the brief reads.

The document also points out that there’s still no guidance from the SEC as to cryptocurrencies. Moreover, they argued that this particular court case makes the environment even more confusing.

Referring to previous similar cases, the Blockchain Association highlighted the high costs of engaging with the SEC and mentioned that it doesn’t guarantee that the Commission won’t rethink its decisions. 

A Bit of Context

For those who haven’t followed the whole story with Telegram and the SEC, here’s a brief reminder. 

Telegram, a popular messenger, has been developing its blockchain platform called TON since at least 2018. They’ve reportedly raised $1.7 billion from accredited investors in March 2018. The developers didn’t really tell much about the project, although the community got excited and there’s still a lot of speculation about the platform.

The launch of the network was scheduled on October 31st, 2019, but the SEC intervened, barring the sale of Gram tokens to the U.S investors.

“Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement.

Since then, the sides have been providing evidence to the court and arguing. The actual court hearing is planned for February 18, 2020. 

What It Could Mean

We’ve asked experts to give their perspective on the matter and the potential consequences for Telegram, its supporters, and the entire crypto-industry.

Tikhon Skudarnov, CEO of a private investment fund, explained that the Blockchain Association is basically doing its job and for them, there is no risk in supporting Telegram. He added that the SEC is limited in its power.

“In public arguments, the SEC is usually way weaker than transnational corporations. Being a budgetary institution, it has limited financial resources for lawyers or PR experts. On top of that, they have lots of controlling bosses, and an attentive and non-friendly audience around them. Their employees just work there, their motivation is weaker than that of startup employees. Those are the hearings on a minor issue. I wouldn’t worry about Telegram or the Blockchain Association.”

Mr. Skudarnov noted that the SEC may not have the full picture:

“I believe that the SEC’s claim that there is no product is kind of weird considering there is an actual and operational testnet. We shall see. There may be lots of technical and legal nuances that we simply don’t know about.”

He also drew parallels between Telegram and Facebook, as both companies venture into the crypto-industry: 

“What is most interesting is the obvious failure of any centralized ecosystem. Telegram, which stands behind TON, walks the same path as Facebook with their Libra. They challenge fiat while being a vulnerable gathering of natural and legal persons. Fighting with governments on this battlefield is just futile.” 

Lastly, Mr. Skudarnov expects the case to have long-lasting consequences for the industry, but it is only the beginning of a larger fight.

“This will definitely become a precedent and influence the industry somehow. But it will happen only after the court ruling. I believe that this minor conflict is but a prelude to a global financial war of tomorrow,” noted Tikhon Skudarnov.

Alexander Temerev, the CEO of Reactivity, mentioned that the industry stood beside Telegram because they don’t want to follow not the obscure unwritten rules, but the actual law:

“They want to live by the law. So they gathered lawyers who criticize the arbitrariness of the SEC’s decision. And they are willing to go to court with that.”

He also noted that, while influential, the SEC’s decision is aimed at Telegram and not the entire crypto-industry, which would be a limiting factor in terms of potential trouble.

“It’s not the final ruling that’s important. What’s really important is the way the case is reviewed. Will the court be guided by law or by some demagogic ideas. There is very little chance for the first option as everything is happening in New York,” he concluded.

As the case progresses, we will ask our experts to provide more insight into this particular matter and share the latest conclusions with our readers.

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