The U.S. Securities and Exchange Commission (SEC), which filed the documents Friday in its ongoing court case against Telegram, said the evidence of post-ICO sales undercuts the company’s argument that the offering was exempt from registration requirements.
Investment fund Leonardo Capital and another entity called Gem Limited requested commissions of $209,783 and $1.1 million, respectively, for “subsequent sales” of purchase agreements for grams, the longer term tokens for Telegram’s blockchain project TON, the filings show.
According to the invoices presented by the SEC, Leonardo Capital sold over $2 million worth of grams to a fund managed by its portfolio company, ITI Funds, on June 20, 2018. Gem Limited sold 7.8 million euros ($8.6 million) worth of grams to a firm named Goliat Solutions and $4.5 million to Space Investments Limited on July 2, 2018.
Both sales happened after the offering of grams, which Telegram maintains was exempt from registration under Regulation D, was completed in February and March 2018.
Da Vinci Capital’s investment director Denis Efremov declined to comment. Gem Limited was unavailable for comment at press time.
The filings joined a huge trove of documents the SEC has submitted to the U.S. District Court for the Southern District of latest York to support its allegation that grams were illegally sold as unregistered securities, which Telegram has denied.
“These documents undermine Telegram’s claimed affirmative defense that the Offering was exempt under Regulation D. First, Telegram either raised quite the $1.7 billion that it claimed an exemption, or it didn’t raise $1.7 billion as of March 29, 2018 and therefore the later funds may are raised through underwriters,” an earlier SEC filing said, pertaining to the invoices.
The SEC’s argument is that under Regulation D, the issuer should take reasonable steps to make sure the purchasers don’t act as statutory underwriters (i.e. aren’t selling securities for the issuer for commissions), said Philip Moustakis, a counsel at Seward & Kissel and former senior counsel at the SEC.
In this case, the regulator is saying the businesses that invoiced Telegram did exactly that, while Telegram argues that the commissions were finders’ fees to non-U.S. persons and entities for introducing grams to other investors, Moustakis said.
Telegram raised $1.7 billion within the pre-sale of future tokens of the TON project in February and March 2018. the acquisition agreement prohibited investors from reselling their grams, but a secondary market emerged soon anyway. However, there have been previously no public indications of Telegram’s approval of the later sales.
The SEC sued Telegram in October, ordering it to halt the launch of TON. The regulator is about to satisfy Telegram in court on Feb 18-19.
In the meantime, the SEC requested full banking records of Telegram regarding the token sale proceeds. On Jan. 9, Telegram asked the judge to grant the corporate five to seven weeks to organize the documents to avoid privacy infringement.