In a November 12 court filing, Messaging app service Telegram has asked the United States District Court for the Southern District of New York to dismiss the complaint filed against it by the U.S. Securities and Exchange Commission. The SEC’s complaint had enabled regulators to obtain an emergency injunction preventing Telegram from issuing its Gram token to investors, based on the commission’s determination that the tokens are securities.
In this latest filing, Telegram defended against the allegations, noting that the company had conducted its token sale “pursuant to valid exemptions to registration under the federal securities laws.” The company also argued that its Gram tokens will not be securities once they are created when the TON blockchain launches.
The company also criticized the SEC for its failure to provide the industry with clear guidance, and its reliance on “regulation by enforcement” rather than fair notice:
Plaintiff has engaged in improper “regulation by enforcement” in this nascent area of the law, failed to provide clear guidance and fair notice of its views as to what conduct constitutes a violation of the federal securities laws, and has now adopted an ad hoc legal position that is contrary to judicial precedent and the publicly expressed views of its own high-ranking officials.
The filing also claims that Telegram has “voluntarily engaged” with the SEC for nearly two years, to ensure that it received “meaningful guidance” that would help it avoid any potential violations of the nation’s securities laws. According to the company, the SEC failed to provide that guidance “prior to bringing this enforcement action.”
The company also offered an affirmative defense against the SEC complain, based on federal court decisions requiring government to give “fair notice of conduct that is forbidden or required.” The filing argued that, “Telegram has not been provided legally and constitutionally sufficient notice that its actions do and would violate the Securities Act of 1933.”
[T]o date, the SEC has failed to provide consistent and meaningful guidance on whether and how it will regulate cryptocurrencies like Grams. Moreover, the SEC never provided fair notice that it believed Telegram’s actions had violated and would violate the federal securities law, even as it knew Telegram was expending significant time and resources, including investor funds, to prepare to launch the TON Blockchain and Grams.
The filing asked the court to dismiss the entirety of the SEC’s complaint claims with prejudice, and grant any other relief that the court might deem proper.