|Founded||August 14, 2013|
|Key People||Pavel Durov, Founder and CEO|
|Products||Telegram messenger app|
In 2018, Telegram raised $1.7 billion in four months through an initial coin offering. The aim of the ICO was to raise funds for the creation of the Telegram Open Network (TON), a digital network that would allow users of Telegram to send payments across international borders. Promotional materials for the ICO said that 5 billion Grams, TON's native coin, will initially be released to users once the network goes live. Investors would be paid $0.37 per token, according to the document. The developers of TON reportedly worked with the Wall Street law firm Skadden, Arps, Slate, Meagher & Flom. Some of TON's initial investors include the Silicon Valley firms Benchmark, Sequoia Capital, and Kleiner Perkins.
In February 2019, Telegram sent a message to its investors saying that the network was 90 percent done and that it hoped to have some version of the system out within a few months.
On July 10, 2019, Liquid, a Japanese cryptocurrency trading platform (CTP), launched a forward sale of Grams on behalf of Gram Asia. According to TechCrunch, Telegram itself does not appear to have been involved directly in the sale. Liquid's website said the Grams would be released to purchasers once TON is completed and operational, a date that was then forecasted to be for the end of October 2019, and that tokens would be released in four equal tranches to buyers over the subsequent 18 months. Gram Asia is reportedly the largest holder of Grams. Liquid excluded residents from Japan, South Korea, the United States, and other countries from the sale. The sale closed at 11:30 PM UTC. The TON mainnet is expected to be launched on October 31, 2019.
In August 2019, the Middle East Media Research Insitute (MEMRI), a Washington D.C.-based nonprofit research company, issued a report showing that terrorist groups such as ISIS, Al-Qaeda and Hamas have been using social media platforms to raise funds via cryptocurrencies. The most common platforms used, according to the report, were Facebook, Twitter, and Telegram.
In September 2019, the first of Telegram's code was released on a test network portal for developers and community members.
As of November 25, 2019, Telegram had banned more than 16,500 bots and channels, "terrorist bots and channels" according to the company, from using Telegram. In a message on the app, CEO and founder Pavel Durov said, ". . . we have zero tolerance for their propaganda on our platform.” In January 2020, cybersecurity firm Kaspersky Labs reported that it had found that the North Korea-linked Lazarus had used the Telegram app to deliver malware.
Investors in the TON blockchain were legally prohibited via user agreement from selling their allocations, an unusual clause for an ICO. Despite the restriction from "directly or indirectly" selling, trading, or swapping Gram tokens, some investors began trading them on unauthorized secondary markets as early as February 2018. Some companies began offering potential customers large buy-ins of Gram via investment vehicles. ATON, an asset management and investment banking company based in Moscow, was one such company. ATON created an investment vehicle called the New Technology Fund SPC Limited, which was structured as a segregated portfolio company (SPC) and registered in the British Virgin Islands. The New Technology Fund SPC Ltd. was specifically created for investment in Gram tokens but is not available to investors in the U.S. or Japan. Although ATON claimed that the company had permission from Telegram to offer the product, this claim is unconfirmed by representatives of Telegram.
SEC regulatory action
On October 11, 2019, the U.S. Securities and Exchange Commission (SEC) announced that it had obtained an emergency temporary order from a federal court restraining Telegram from issuing Grams before the planned October 31 launch of the TON mainnet. The SEC alleged that the issuance was part of a sale of unregistered securities in the United States. According to the complaint, Telegram had sold more than a third of the total 2.9 billion digital tokens 39 U.S. purchasers. The issuance had been scheduled for some time before October 31. Telegram later told investors that it was surprised by the SEC's action since it had been in discussions with the agency for a while. It also told them that it was considering delaying its Gram issuance.
Later that month, Telegram wrote an open letter to its investors, saying that the company wanted to push the launch of the TON blockchain from October 30, 2019 to April 30, 2020. The letter included a legal agreement for investors to sign, explaining that they had the option to demand their money back, in which case "approximately 77 percent" of their initial investment would be returned. The majority of investors gave consent to extend the deadline instead of receiving a partial refund.
Telegram responded to the SEC in a November 12, 2019 filing in the Southern District of New York district court and asked the court to dismiss the case against it saying that its private placement to accredited investors "was conducted pursuant to valid exemptions to registration under the federal securities laws and Grams will not be securities when they are created at the time of launch of the TON Blockchain."
On January 10, 2020, the SEC produced evidence that Telegram had conducted illegal securities offerings, showing that Telegram sold over $1.3 million to Da Vinci Capital and Gem Ltd. after Telegram's initial ICO in March 2018.
A federal district court judge in New York enjoined Telegram on March 23, 2020 from issuing Grams in accordance with its announced plans to launch the currency at the end of April. Judge Kevin Castel wrote, "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." Telegram appealed the district court's decision the same day.
In March 2020, several investors reportedly said that they were preparing to ask for their money back, despite CEO Pavel Durov saying that only 72 percent of their investments would be refunded, as the other 5 percent had been spent on developing the TON protocol since October. Around the same time, several developers and investors from the TON Community Foundation, began discussing the possibility of launching the TON protocol independent of Telegram's control or consent. The developers with the TON Community Foundation said that this was possible because most of the code for TON was available publicly. Former communications manager at TON Labs and Founder of the TON Community Foundation Fedor Skuratov said that "no additional measures are required to launch TON by the community, except for a consensus within the community. But in order to get recognized, we will need to come to an agreement with investors (at least, with a majority of them).”
TON development halted indefinitely
The TON protocol ultimately failed to launch by April 30, the deadline that its development team formally agreed upon, after which time it would have to begin returning funds to investors. In May 2020, Durov announced that Telegram was suspending the development of the TON protocol due to its conflicts with U.S. regulators.
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