Telegram Group and its wholly-owned subsidiary TON Issuer agreed to return more than $1.2 billion in ill-gotten gains to investors to settle a complaint filed by the Securities and Exchange Commission (SEC).
In October last year, the SEC alleged that Telegram and TON Issuer conducted an unregistered digital token offering to raise capital for its business including the development of the TON Blockchain and Telegram Messenger.
In the U.S. alone, Telegram and TON Issuer allegedly sold more than one billion digital tokens called “Grams” to 39 investors. Worldwide, the defendants allegedly sold 2.9 billion Grams to 171 initial investors.
The defendants violated the registration provisions of the Securities Act of 1939 by failing to register the offering and sales of Grams, according to SEC in its complaint.
In March, the U.S. District Court for the Southern District of New York issued a preliminary injunction prohibiting Telegram Group and TON Issuer from selling Grams. The Court also determined that the SEC had substantial proof that the digital token offering was part of a bigger scheme to distribute Grams to the secondary public market.
On Friday, the Commission announced that the Court approved Telegram Group and TON Issuer’s proposed settlement.
In addition to the more than $1.2 billion to return to investors, Telegram Group and its subsidiary agreed to pay a civil penalty of $18.5 million.
Furthermore, the companies agreed to the entry of the final judgment prohibiting them from violating registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933.
Telegram Group and TON Issuer also agreed to give notice to the SEC staff over the next three years before participating in the issuance of any digital assets.
The companies settled without admitting or denying the SEC allegations.
Protecting and providing relief to investors from Telegram’s illegal offering
In a statement, SEC Enforcement Division’s Cyber Unit Chief Kristina Littman said, “New and innovative businesses are welcome to participate in our capital markets but they cannot do so in violation of the registration requirements of the federal securities laws.”
“This settlement requires Telegram to return funds to investors, imposes a significant penalty, and requires Telegram to give notice of future digital offerings,” added Littman.
Lara Shalov Mehraban, Associate Regional Director of the New York Regional Office, commented, “Our emergency action protected retail investors from Telegram’s attempt to flood the markets with securities sold in an unregistered offering without providing full disclosures concerning their project.”
She added, “The remedies we obtained provide significant relief to investors and protect retail investors from future illegal offerings by Telegram.”