By
Godfrey Benjamin
April 17th, 2024
Peirce revealed her disapproval of the earlier SEC actions against the 2018 Telegram ICO. The action caused Telegram to abandon its TON blockchain project.
United States Securities and Exchange Commission (SEC) commissioner Hester Peirce slammed the SEC for filing a lawsuit against Telegram.
The SEC brought the lawsuit against the company for running an unregistered Initial Coin Offering (ICO), which raised $1.7 billion. Peirce said the SEC’s action was wrong and will only discourage innovators from founding businesses in the U.S.
Peirce Opposes SEC Position Towards Telegram
Hester Peirce, also known as the “Crypto Mom”, declared her opposition to the SEC action in a speech on July 21st. The speech titled, “Not Braking and Breaking” was delivered at the Singapore Blockchain Week virtual event. After declaring that her views do not represent the SEC or fellow commissioners, Peirce expressed her disagreement.
Back in 2018, Telegram raised funds in an ICO to develop its blockchain, the “Telegram Open Network” or “TON Blockchain”. The fund was also to develop the GRAM token and improve the company’s mobile messaging application. Telegram raised over $1.7 billion from global investors through the token sale.
However, in October 2019, the SEC filed an emergency action and obtained a temporary restraining order against Telegram and its wholly-owned subsidiary TON Issuer Inc. According to the SEC:
“The complaint alleges that defendants failed to register their offers and sales of Grams, which are securities, in violation of the registration provisions of Securities Act of 1933.”
Steven Peiken, the co-director of the SEC’s Division of Enforcement, also added:
“We have repeatedly stated that issuers cannot avoid the federal securities laws just by labelling their product a cryptocurrency or a digital token. Telegram seeks to obtain the benefit of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.”
Telegram’s SAFT Structure
The SEC’s disapproval with Telegram was due to the way the company structured its ICO. Telegram decided to sell its tokens under a “Simple Agreement for Future Token (SAFT)” structure. The SAFT structure allows investors to buy rights to the tokens. After the TON launch, the company plans to distribute tokens to investors with these rights. Peirce believes this structure should protect Telegram from violating the SEC law. However, the SEC argued that regardless of the SAFT, Telegram was still violating the law.
The case was finally settled in June, and Peirce referred to the settlement as an “unsatisfying culmination of an enforcement action that I did not support from the beginning.” The settlement of the case had a negative effect on Telegram as the chat app could not launch its digital currency in October 2019 as planned. The case also forced Telegram to return most of the funds to the investors.
In Peirce’s speech, the commissioner reintroduced her “safe harbor” proposal for token projects. The proposal, first mentioned earlier this year, gives crypto startups three years to run their businesses without worrying about the U.S. securities law.