The development team of the Telegram instant messaging network has appealed a court ruling issued by the Southern District of New York earlier this week with regard to the company's cryptocurrency ambitions. The United States Securities and Exchange Commission is the plaintiff in this case, and the crux of the complaint should be familiar to anyone who has been following the SEC's position on how new digital currencies are launched, issued, and minted.
The SEC complaint against Telegram was filed in October 2019; in essence, regulators argue that the GRAM token was released as an unregistered security when it launched in the year 2018. The company attracted quite a bit of attention when it announced its intention of developing a blockchain network on top of the decentralized Telegram communications protocol; this attention translated into $1.7 billion poured by investors eager to be among the first to hold the GRAM token.
Telegram was all set to launch the Telegram Open Network blockchain for efficient issuance and trading of GRAM, but a federal judge granted an injunction against the company. It should be noted that this is a preliminary injunction, which means that the case is still open, and the defendants are already seeking appellate review before the Second Circuit.
Compared to previous initial coin offering cases litigated by the SEC, Telegram's case has not moved towards the settlement stage because the investors are alleged to be underwriters of the GRAM digital currency. This creates a bit of a collusion with regard to the intention of making the token available to the public. Existing regulations and case law do not offer a safe harbor strategy for Telegram, thus making it easier for the judge to grant the SEC's request for a preliminary injunction.
It does not look as if the appeal could be successful in terms of lifting the injunction; however, establishing some sort of clarity on the issue may allow Telegram's legal team to put the company in a position to reach a settlement agreement with the SEC. Being declared an unregistered security by the SEC is usually the end of the line for cryptocurrency development teams.