Telegram and SEC agree on settlement, $1.2B to be returned to investors

An ugly battle between Telegram and the U.S. Securities and Exchange Commission is coming to an end after a proposed settlement was reached.

For eight months, the encrypted messaging app and the regulator have been coming to blows—with the SEC claiming the company’s $1.7 billion sale of gram tokens was an illegal securities sale.  

Under the deal announced on June 26, Telegram would pay an $18.5 million penalty and return $1.2 billion—about 70% of the funds raised—to investors in the form of a “disgorgement.” The company wouldn’t have to admit to any wrongdoing.

That sounds harsher than it is, as Telegram CEO Pavel Durov had already offered investors 72% refunds. He had even promised non-American investors he would guarantee 100% refunds out of his own pocket if they stuck with TON a little longer.

Now, Telegram will have three years to reimburse investors in full—and has the option of seeking an additional 12-month extension if required. The SEC will also have to receive 45 days’ warning if the company wants to attempt another token sale in the future.

TON of bricks

The legal fight has come at a high price for the company—even before this settlement is taken into account. Last month, Durov announced it was abandoning the Telegram Open Network altogether.

In a message posted to his Telegram channel on June 25, after the proposed settlement was filed by the SEC, Durov wrote: “Since we saw limited value in pursuing the court case further, we welcomed the opportunity to resolve it without admitting or denying our liability.

“Today’s proposed settlement reconfirms our commitment to repay the remaining funds to purchasers under the Purchase Agreements. We’ve already repaid more than 1.2bn to the purchasers either directly or in the form of loans.

“We look forward to continuing to pursue our other projects and avenues for innovation, and we hope the regulatory environment for blockchain technology in the US becomes more favorable for others in the future.”

Durov’s tone in that message was far less acrimonious than what he had to say in May, in the immediate aftermath of TON’s demise. In a lengthy blog post, he took aim at regulators and the courts—reserving most of his vitriol for the judge who ruled that the issuance of gram tokens to U.S. and international investors should be delayed.

Discussing March’s ruling, which served as a nail in the coffin for TON, Pavel wrote: “This court decision implies that other countries don’t have the sovereignty to decide what is good and what is bad for their own citizens. If the US suddenly decided to ban coffee and demanded coffee shops in Italy be closed because some American might go there—we doubt anyone would agree.

“Unfortunately, we—the 96% of the world’s population living elsewhere—are dependent on decision makers elected by the 4% living in the U.S.”

Big ramifications

Telegram’s abandonment of TON will likely send shockwaves through the crypto industry.

In a telephone interview after that decision, well-known cryptocurrency lawyer Stephen Palley told Modern Consensus the case could have huge ramifications for other crypto projects that have raised money using a Simple Agreement for Future Tokens—or SAFTs—especially if they are based in the U.S.

“I think it’s going to create problems for other people in the space,” he said. “This is what happens when you push against a regulator thinking money and lawyers will buy your way out.”