A New York federal judge has issued a preliminary injunction barring Telegram from issuing and distributing its GRAM digital tokens, the Block reports. The Court, applying the Howey test, determined that the distribution would violate the nation’s securities laws.
According to the ruling:
“The Court finds that the SEC has shown a substantial likelihood of success in proving that the contracts and understandings at issue, including the sale of 2.9 billion Grams to 175 purchases in exchange for $1.7 billion, are part of a larger scheme to distribute those Grams into a secondary public market, which would be supported by Telegram’s ongoing efforts.
Considering the economic realities under the Howey test, the Court finds that, in the context of that scheme, the resale of Grams into the secondary public market would be an integral part of the sale of securities without a required registration statement.”
Telegram has contended that its agreement with the Gram purchasers was covered under an exemption from the SEC’s registration requirements. Under the company’s theory, the resale into the secondary markets would be unrelated to the initial sale and thus shouldn’t be seen as securities offerings. The Court rejected that view, noting:
“Telegram knew and understood that reasonable purchasers would not be willing to pay $1.7 billion to acquire Grams merely as a means of storing or transferring value. Instead, Telegram developed a scheme to maximize the amount initial purchasers would be willing to pay Telegram by creating a structure to allow these purchasers to maximize the value they receive upon resale in the public markets.”