The hugely popular messaging app, Telegram enjoyed a short-lived win in court against the Securities and Exchange Commission (SEC) this week. A federal judge denied the SEC’s request for Telegram to hand over all bank statements before January 8th regarding its TON blockchain project. Unfortunately, the mounting legal ramifications coupled with the more aggressive stance taken by the SEC following the start of the trial has made company executives reconsider their TON strategy altogether.
Telegram has been enthralled in a case with the SEC over the development of its TON blockchain and Gram cryptocurrency for months. In October, the SEC sued Telegram. According to SEC documentation, the firm alleges that Telegram violated numerous federal securities laws during its record-breaking 2017 $1.7 billion initial token offering (ICO).
Defending the TON Blockchain
For its part, Telegram put up a hefty defense. The company claimed that Grams are utility tokens. Therefore, they fall outside SEC jurisdiction. In turn, the SEC saw these actions as a slap in the face. Consequently, the group decided to expand its investigation. Now the SEC doesn’t just want to stop the sales of Gram tokens, the group seeks to call into question the validity of the company’s 2017 ICO.
The SEC claims that Telegram engaged in fraudulent activities during its fundraising campaign. This pivot towards a more aggressive prosecution of the firm comes after SEC officials accused Telegram of stalling and making excuses regarding the group’s request for investor information. Ironically, its exactly this request which has put Telegram in a bit of a quagmire.
Small Win for the TON Blockchain
Federal Judge, Kevin Castel of the Southern District of New York is the official preceding over the case. He handed Telegram a small victory in court this week after postponing the SEC’s demand for investor information. Telegram denied the ability to provide this info by the requested January 8th deadline because it would violate EU consumer protection laws. Basically, EU privacy requirements mandate that the firm remove all personal information from EU citizens files before handing them over to a foreign government.
Judge Castel did, however, let Telegram officials know that the denial was really more of just a postponement. He stated that in the “not-too-distant future” the firm would need to provide the requested bank statements to the SEC. The added time frame gives Telegram a chance to produce such records without violating any foreign data privacy laws.
Rethinking the TON Blockchain Concept
Following the increased SEC pressure, Telegram officials decided it was best to abandon some of the most critical parts of its TON blockchain strategy. In a recent blog post, the firm shed some light on the monumental changes executives decided on. For one, Telegram will no longer integrate its Gram cryptocurrency wallet into the Telegram Messenger. Basically, the wallet will be available solely on a stand-alone basis.
The post was equally damming for the TON blockchain project. Company officials stated that they have no plans to maintain or develop future applications for the TON blockchain. In fact, the company stated that it hopes that third-party developers will step in to keep the blockchain functioning via some newly founded foundation.
Massive Blow to TON Blockchain Investors
The decision to not integrate the TON ecosystem into the Telegram messenger is a massive blow to investors. Telegram has over 200 million monthly active users. The direct integration of TON into the platform would have provided the system with a huge advantage over the competition. Starting the concept with a giant captive market and giving users instant and seamless access to Gram tokens was the main driving force behind most investor’s decision to become a part of the TON blockchain.
To drive the post home, Telegram made a public statement, which is more of a legal disclaimer. In the disclaimer, the company stated some surprising facts. For one, Telegram claims that it never “made any promises or commitments to develop any applications or features for the TON Blockchain.” This post left TON investors wondering what is to happen to their capital now that the project’s main draws are no longer the reality.
Telegram – TON Caught in the Cross Hairs
Considering the sheer size of Telegram’s 2017 ICO, it’s not a huge surprise to see that the SEC decided to put some pressure on the firm. Unfortunately, the SEC has now left TON investors holding the bag, as the firm has all but abandoned their crypto dreams.
Is it Hoax?
There are some analysts that believe that the new tactics displayed from Telegram are actually part of a larger strategy. They see the maneuvers as a way to ease the platform into existence. By producing the TON blockchain and wallet as a separate entity, Telegram can avoid much of the fear and disdain regulators and lawmakers have shown thus far.
Much of this negative press can be attributed to the spillover from Facebook’s Libra project. Government officials are not keen on huge social media platforms entering the crypto sector. Already, lawmakers from both sides of the aisle have put forth stifling regulatory bills to slow the adoption of cryptocurrencies by these tech behemoths. The question now remains, will these regulations be enough to halt these projects? In the case of the TON blockchain, it appears that they were.
TON – A Dream Lost
It’s sad to see a concept as advantageous as the TON blockchain dismantled slowly. The sheer size of Telegram’s network would have significantly boosted cryptocurrency adoption globally. Analysts pointed towards massive social media networks as one of the fastest ways to integrate cryptocurrency use in an effective manner. Unfortunately, its exactly this large scale adoption that has lawmakers and regulators on edge.
No Grams for You
Despite strong support from investors, and a record-breaking ICO, it now looks as if the entire TON blockchain project has come into question. Hopefully, Telegram and the SEC find a mutual understanding. If so, it could allow for the continuation of the development of this unique and game-changing blockchain. For now, the cryptocommunity awaits to see both the SEC’s and Telegram’s final response.
XRP Ripple Lawsuit re-filed, but not as a Security?
This week, news broke that an amended complaint against Ripple has been filed by XRP investors. This news is the latest development in a two-year class-action lawsuit brought against the firm. Interestingly, investors chose to amend this lawsuit in order to add protections in the case that XRP doesn’t fall under securities regulations.
Importantly, the amended suit includes former XRP investor Bradley Sostack as the lead plaintiff. In this go-around, the plaintiffs brought additional claims against Ripple and its CEO, Brad Garlinghouse for violation of California business law. The report alleges the company blurred the differences between its enterprise solutions and XRP to further drive demand in the market.
Hedge Your Bets
Originally, the lawsuit alleged that Ripple raised millions of dollars through the unregistered sales of XRP to US retail investors. Now, according to a court document filed on March 25, investors decided to attempt another approach. Perhaps, fearing that XRP could escape securities regulations, the new suit goes after the firm for violations of California business laws.
To this extent, the sixth claim for relief states that the firm participated in false advertising, while a seventh claim, further accuses the firm of unfair competition in violation of California regulations. Also, the claim states that Ripple reportedly limited the supply of XRP to drive price appreciation.
Garlinghouse Under Fire
Specifically, the allegations claim that Garlinghouse made numerous conflicting claims to investors. In multiple instances, he stated that he was holding XRP for long-term gains. However, researchers pointed out that these statements were false. Throughout 2017, Garlinghouse sold millions of XRP via cryptocurrency exchanges. In fact, a review of the XRP ledger indicates that Garlinghouse sold over 67 million XRP in 2017 alone. Additionally, on multiple occasions, he dumped his XRP within days of receiving it from Ripple.
SEC vs Ripple XRP
The lawsuit cites statements made from Ripple about XRP being a utility token essential for international payments. Additionally, the firm and CEO made statements in which they described the cryptocurrency sales are primarily to market makers. This last point could prove to be a major problem for Ripple as 60 percent of XRP is owned by Ripple, and until now, only saw use solely for fundraising efforts.
The Ripple XRP Saga
The XRP securities saga started when a group of disgruntled investors lodged a complaint with the SEC back in 2018. Since that time, the case has seen numerous amendments as both Ripple and the plaintiffs adjusted their strategies. Ripple hoped to get the case dismissed early on, but U.S. District Judge Phyllis Hamilton in the Northern District of California ordered in February the suit could proceed to trial.
While the news did seem bleak for Ripple, at that time, Judge Hamilton also stated that the company did not violate California state law. Consequently, both the false advertising and personal liability against Ripple’s CEO Brad Garlinghouse were dropped in that instance.
Now, Ripple worries that the plaintiffs will utilize unlimited amendments to falter the XRP market. Given the new legal approach that the plaintiffs have taken to towards the company, there may be some validity to their concerns.
BSTX Experiences Proposal Delay, as SEC Seeks Further Commentary
The SEC has recently released an update on a proposal put forth in 2019 by the, yet-to-launch, Boston Security Token Exchange (BSTX). Despite being considered since last May, the proposal has been postponed. The purpose of this delay is to allow for public commentary.
This move, delaying the final decision, comes after months of deliberation on the proposal put forth by the BTSX. From the time of the initial filing, we have covered developments surrounding the BSTX on multiple occasions. The following articles shed light on this timeline, and what the BSTX is trying to achieve.
While not all-encompassing, the following are a few of the key points put forth by the BSTX in their proposal for change.
- Asset ownership recorded using a private blockchain
- Trading enabled through use of BSTX tokens
- Whitelisted Clients
In their most recent extension, the SEC noted that it was done in hopes that the public would come forth, and share their stances towards the proposal. They stated,
“The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal.”
Presumably, what prompted this delay is multiple responses received during the first commentary period. While there were only two received, each expressed trepidation towards what the BSTX is trying to achieve.
Of the two responses received, thus far, one was received by a representative of Nasdaq. It is stated,
“Nasdaq respectfully submits that the BOX proposal may place an unreasonable burden on competition because the blockchain (ledger) technology used to track ownership of the security token—the only aspect of this instrument that is unique—would not have a common distributed ledger. Rather, the distributed ledger would be exclusively available on BOX, thereby placing other exchanges at a competitive disadvantage that cannot be remedied by replicating the blockchain offering. Furthermore, the proposal appears to provide insufficient detail regarding: (1) digital securities infrastructure and technology pairing with the existing equities market infrastructure, and (2) its impact on the anti-fraud and customer protection provisions of the Act, as well as possible investor confusion. Nasdaq recommends that BOX submit additional detail addressing these concerns before the proposal is approved.”
Simply put, they break down their issues into two main points:
- ‘The Proposal places an unreasonable burden on competition’
- ‘The Proposal provides insufficient information to assess compliance with the Act or the costs to market participants.’
The commentary, put forth by Nasdaq, closes with a request for more information, stating,
“For the reasons described above, Nasdaq believes that BOX has provided insufficient information concerning the proposal’s impact on competition, how it complies with other aspects of the Exchange Act and Anti-Money Laundering statutes, and how BOX intends to avoid investor confusion. Nasdaq recommends that BOX submit additional detail addressing these concerns before the proposal is approved.”
Boston Security Token Exchange (BSTX)
Founded in 2018, the BSTX is a joint venture between BOX Digital, and tZERO. The goal of the BSTX is to establish a regulated and full-fledged exchange, which offers support for digital securities.
CEO, Lisa Fall, currently oversees company operations.
SEC Levies Various Charges Against ‘Teshuater’
The SEC has recently laid charges on yet another fraudulent company, which robbed investors of funds through a variety of means.
The charges laid are against a group of entities, which include:
- Teshua Business Group
- Larry Leonard
- Shuwana Leonard
It is believed that the couple, Larry and wife Shuwana, used his standing as a former Texas Pastor, to prey specifically on the African-American community.
Over the past few years, and most prominently during the 2017 ICO boom, we have seen various projects touting their unique nature. While everything from maple syrup, to lost treasure, has been touted as value backing for coins, one of the more ridiculous is Alkaline Water.
It is this Alkaline Water, which much of the fraud to have taken place, was based upon. The Leonards’ touted their Alkaline Water company as being the first of its kind to be ‘black owned’. They then attempted to raise money by selling stock, selling non-existent ‘TeshuaCoins’ purportedly backed by their reserve of water, and under the guise of a yet-to-be established BTC mining outfit.
Even if this entire endeavour was legitimate in their efforts to raise money, the underlying product is basically snake oil; A product with no proven benefits was being peddled as an asset of value.
Over the course of their journey, preying on unsuspecting investors, money was stolen through various means.
There were three main streams of income for the couple behind TeshuaCoin.
- Capital generation through an ICO
- $170,395.20 was raised out of a $20 million goal
- Selling fake equity within Teshuater
- Nearly $291,044.07 was raised through the issuance of fraudulent ‘stock certificates’
- Investments for establishing a mining pool
- $25,544.96 was stolen, with zero effort to establish said pool
Naturally, as the fraud committed was not done so in a singular manner, there are various charges being laid against the couple and their group of companies.
These charges revolve around each of the aforementioned three ways that they decided to defraud investors. Per their filing, SEC is seeking the following:
- Permanent injunctive relief
- Disgorgement of ill-gotten gains plus prejudgement interest thereon
- Civil penalties
- Equitable and ancillary relief to which the Court determines the Commission is entitled
In their filing, the SEC summarizes the result of efforts made by Larry Leonard, Shuwana Leonard, and their companies, to defraud investors.
“Since at least 2017, Larry Leonard, individually and through Teshuater and TBG, along with his wife, Shuwana Leonard, targeted investors in the African-American community by promising oversized returns on various investments related to Teshuater, a business that bottled and distributed alkaline water. During the course of this scheme, Defendants raised nearly $500,000 from over 500 investors through materially false and misleading statements and omissions and other deceptive conduct.”