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The Securities and Exchange Commission (SEC) stopped two offshore entities from conducting an alleged unregistered, ongoing digital token offering in the United States and overseas that raised more than $1.7 billion in investor fund.

The SEC filed a complaint and obtained a restraining order against Telegram Group Inc. and its wholly-owned subsidiary TON Issuer Inc.

In its complaint, the securities regulator alleged that in January 2018, Telegram and its subsidiary started raising capital to finance its business including the development of its blockchain, the Telegram Open Network or TON Blockchain and its mobile messaging app called Telegram Messenger.

According to the SEC, Telegram sold around 2.9 billion digital tokens called “Grams” at a discounted price to 171 initial buyers worldwide. In the United States, 39 investors purchased over 1 billion Grams.

Telegram promised to deliver the Grams to its initial purchasers upon the launching of its blockchain by no later than October 31, 2019. During that time, the company and its purchasers will be able to sell billions of Grams into the U.S. markets.

However, the company failed to register its offering and sales of Grams, which are considered securities. Its failure is a violation of the registration provisions of the Securities Act of 1939, according to SEC.

Telegram violated federal securities laws

Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, said they obtained a restraining order to prevent Telegram from flooding the U.S. markets with unlawfully sold digital tokens.

“We allege that the defendants have failed to provide investors with information regarding Grams and Telegram’s business operations, financial condition, risk factors, and management that the securities laws require,” added Avakian.

Avakian’s Co-Director Seven Pelkian further stated, “We have repeatedly stated that issuers cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token. Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.”

The SEC filed its lawsuit against Telegram and its subsidiary in the federal district court in Manhattan. The securities regulator is seeking certain emergency relief, permanent injunctions, disgorgement with prejudgment interest, and civil penalties.