Telegram Delays Token Sale as the SEC Files for Injunction

Telegram is ready to push back their token sale following an injunction initiated by the US Securities and Exchange Commission over the sale of its Gram tokens.

The SEC ordered Telegram to stop the token sale with an emergency restraining order against Telegram Group, Inc., and TON Issuer, the two issuers of Telegram’s tokens listed in the Regulation D filing with the SEC in February and March 2018.

Telegram is ready to follow the SEC’s order for now and delay the token sale.

“Telegram has agreed to stipulate that it will not make any offers, sales, or deliveries of its expected cryptocurrency, called “Grams,” in order to maintain the status quo until this Court can resolve the legal issues at the heart of the matter,” the document reads.

Last Friday, the SEC filed the emergency action against Telegram to prevent it from distributing its Gram tokens, which the agency deems as unregistered securities. The regulator said Telegram failed to register a securities issuance and “committed to flood the U.S. capital markets with billions of Grams by October 31, 2019” — the deadline for TON’s launch.

In a letter to investors following the SEC filed order Telegram said that it has been working with the SEC over the past 18 months and has been surprised to see the lawsuit initiated by the agency. The company also accused the SEC of failing to advise Telegram on its blockchain project and token sale.

By voluntarily stopping the sale and distribution of Gram tokens, Telegram states that the injunction is no longer required, asking the court to deny the SEC‘s motion.

With all the issues around the token sale, it looks like Telegram‘s token launch definitely won’t stick to the schedule.

Following Telegram’s response on October 16, where the company argued that its native crypto is not a security and the preliminary injunction should be denied, the SEC has responded with a new filing in the U.S. District Court on October 17.

In the document, the agency insists that Telegram has actually violated the U.S. securities laws and that a preliminary injunction should be granted to prevent Telegram from further violation, mentioning that the company is likely to violate the law again.

Should the motion pass, this would be a massive blow to Telegram’s efforts who already raised over $1.7 billion in two pre-sale rounds, with major venture funds, including Lightspeed Ventures, Sequoia Capital and Benchmark as investors.

Block.one and SEC Agree $24 Million Settlement Over EOS ICO

Blockchain company Block.one has reached a civil settlement agreement with the United States Securities and Exchange Commission (SEC) relating to an unregistered initial coin offering (ICO) it undertook in 2017-18.

The settlement relates specifically to the ERC-20 tokens that Block.one sold on the Ethereum blockchain between 26 June 2017 and 1 June 2018. The SEC said the unregistered ICO raised the equivalent of around 4 billion dollars.

In a statement, Block.one said it would pay a $24 million fine whilst neither admitting nor denying the SEC’s findings, this representing around 0.6% of the total amount raised through the ICO.

The main reason behind the SEC’s case filing was that Block.on did not provide ICO investors with the information necessary in a securities offering. While $24 million might seem like a lot, it is a minor inconvenience for Block.one which raised $4 billion.

On a further controversial note, Block.one even made investment purchases with higher amounts. Earlier this year, Block.one set out to build a decentralized social network, in the process buying the website Voice for $30 million.

With this settlement between the SEC and Block.one, the company is guaranteed that EOS won’t have to contend with regulators trying to classify it as a security offering. This also makes way for EOS to be traded on U.S.-based cryptocurrency exchanges without any additional repercussions.

Block.One’s statement said that its ERC-20 token is no longer in circulation and will not require the token to be registered as a security with the SEC.

“The SEC has simultaneously granted Block.one an important waiver so that Block.one will not be subject to certain ongoing restrictions that would usually apply with settlements of this type. Block.one believes the SEC’s granting of this waiver evidences Block.one’s continuing commitment to compliance and best practices in the United States and globally.”

This can become a cornerstone case, as blockchain and ICO projects can see that the path taken by Block.one might not be as cumbersome as registering and filing for a securities offering, like in the case of Blockstack.

Earlier this year, Blockstack became the first blockchain company that filed with the SEC under Regulation A+. During its token offering, the company managed to raise $23 million, while the costs of going the official route with the SEC was estimated around $2 million.

Harbor Gets Approval from FINRA for Broker-Dealer License

Harbor Square Investments, the subsidiary of tokenized securities platform Harbor, has received a broker-dealer license from the Financial Industry Regulatory Authority (FINRA), according to a report from CoinDesk.

Crypto Broker Dealer License Issued

Receiving a broker-dealer license as a cryptocurrency-centered company is not easy. U.S. regulators have worked with cryptocurrency companies with a lot of reservations. For over a year, the SEC and FINRA have delayed making a decision upon approving licenses for some 40 cryptocurrency companies.

The main concern of the regulators is the risk cryptoassets present for investors. As a broker-dealer, a company can buy and sell securities on their own and in the name of their clients. In the digital asset space, a broker-dealer who provides digital assets as securities can potentially market them to institutional investors.

Considering the technically complex and relatively new way of dealing with digital assets, these companies face strict requirements from the SEC and FINRA. According to Harbor CEO, Josh Stein, the novelty of the cryptocurrency technology has been challenging for the regulators to process their application.

Whenever broker-dealers deal in the name of their clients, questions around custody, safekeeping and private key access arise. Regulators had to understand the new paradigm before approving any licenses.

“It took the regulators a long time to get a handle on the space and understand it and its implications,” Harbor CEO Josh Stein. “This was very new for the SEC and FINRA, and they wanted to do it right.”

All-Round Services for Digital Issuance

With a broker-dealer license, Harbor plans to provide a comprehensive A-Z solution for digital asset issuers.

“We’re going to provide the technology platform to manage the fundraising, the technology to manage investors, the technology to tokenize and enable liquidity,” Stein said.

Up until Harbor’s license approval, the firm could only make introductions to partner broker-dealers. The firm had no possibility to handle key processes, such as performing due diligence, which now changes with the broker-dealer status.

Harbor’s licensing marks an important step in the regulatory landscape, as other broker-dealers for digital assets may appear on U.S. soil. Stein suggested that it’s a positive sign for the industry – and said more crypto broker-dealers may break through as the SEC and FINRA gains exposure to digital assets.

“The regulators are saying: ‘Hey, this is a regulated activity that a broker-dealer should go do. They should go sell these digital securities, because that’s perfectly legitimate, appropriate and within the regulations.’That’s a big deal for the whole industry.”

Kik to Shut Down App and Focus on Its KIN Cryptocurrency

Kik Interactive, the Ontario-based startup behind the popular mobile messaging app Kik, is considering shutting down the messaging app, according to local reports.

Following reports that the company’s crypto-focused subsidiary Kin had laid off 70 employees, CEO Ted Livingston announced Monday that Kik will also be shutting down its core messaging service. The company’s CEO stated that the company had made a deliberate decision in order to focus on fighting a recent U.S. Securities and Exchange Commission (SEC) ruling.

“Instead of selling some of our Kin into the limited liquidity that exists today, we made the decision to focus our current resources on the few things that matter most,” he wrote in a blog post, further adding that this meant shutting down the Kik app.

He further added that the company would reduce its crypto operations to just 19 core developers in an effort to ensure that KIN can scale to become the true currency of the internet going forward.

The company first launched Kin in 2017, raising $100 million through an initial coin offering (ICO). The coin had become one of the most used cryptocurrencies in the world, with 600,000 monthly active spenders.

Meanwhile, Kik has been wrapped in a legal battle with the SEC over the issuance of its KIN tokens. From May to September 2017, Kik offered and sold 1 trillion digital tokens called “Kin.” More than 10,000 investors worldwide purchased Kin for approximately $100 million in US dollars and digital assets — over half of this sum coming from investors located in the United States.

However, Kik’s offer and sale of Kin was not registered with the SEC, and investors did not receive the disclosures required by the federal securities laws.  In response to that, CEO Livingston had decided to fight the ruling and therefore shutting down its messaging app in order to fully concentrate on the legal battle.

Despite the messaging app shutting down, Livingston pointed out that the core developer team is pivoting towards further developing the KIN token.

He explained:

“Kin is a currency used by millions of people in dozens of independent apps. So, while the SEC might be able to push us around, taking on the broader Kin Ecosystem will be a much bigger fight. And the Ecosystem is close to adding a lot more firepower.”

Ever since the legal disputes in June, Kin’s token has dropped from $0.000036 to $0.0000105 as of today, according to data provider Messari.

SEC Serves Cease and Desist Order to Russian ICO Rating Website

The United States Securities and Exchange Commission (SEC) has fined and settled charges against Russian analytics website ICO Rating in the amount of $268,998 for failure to disclose payments it received to publicize digital asset offerings of issuers it had rated, according to an announcement.

In the announcement, the US Securities and Exchange Commission disclosed that it had charged ICO Rating for violating anti-touting provisions for projects rated from December 2017 to July 2018.

Particularly, the regulator claimed that ICO Rating violated the anti-touting provisions of Section 17(b) of the Securities Act of 1933 by failing to disclose payments it received from initial coin offering (ICO) issuers it rated and published on its platform.

According to the press release, ICO Rating featured ratings of tokens that the regulator deemed to be securities on its website as well as across social media. Such as projects rated by ICO Rating during that time raised funds through particular initial coin offerings (ICOs), proper disclosures should have been made to potential investors.

Associate Director of the SEC’s Enforcement Division Mellisa Hodgman explained:

“The securities laws require promoters, including both people and entities, to disclose compensation they receive for touting investments so that potential investors are aware they are viewing a paid promotional item. […] This requirement applies regardless of whether the securities being touted are issued using traditional certificates or on the blockchain.”

Neither admitting nor denying the SEC’s findings, the Russian-based company has agreed to cease and desist from committing any future violations of these provisions. Consequently, it paid disgorgement and prejudgment interest of $106,998 and a civil penalty of $162,000, which rounds to a total of $268,998 in damages.

Meanwhile, August has proven to be a busy month for the regulatory agency. Just last week, the SEC charged New England-based SimplyVital Health for failing to register a $6.3 million Ether (ETH) pre-sale of its HLTH tokens. Without confirming or denying the allegations that it violated certain aspects of the Securities Act of 1933, the healthcare agency agreed to a cease-and-desist order imposed by the regulator.

Earlier in August, it has also been reported that the SEC reached a $7 million dollar settlement against two other ICO-based projects – PlexCorps and Reggie Middleton of Veritaseum – over an allegedly fraudulent ICO.