Judge Halts Telegram Founders Dream of Successful TON Launch

UTC by Jeff Fawkes · 4 min read
Judge Halts Telegram Founders Dream of Successful TON Launch
Photo: Shutterstock

Judge Kevin Castel is clearly against Telegram in the case of the GRAM token launch. Federal Judge claims that Telegram founders can not distribute their tokens to anyone, not only to U.S. citizens.

The New York Southern District Court Honorable Judge Kevin Castel finds Durov’s arguments that they will ‘restrict the U.S. residents’ from the Telegram Open Network (TON) launch unconvincing. Durovs’ promise to continue with new appeal.

Last week, Telegram had requested the Judge to provide additional arguments against TON. Earlier, the Securities and Exchange Commission (SEC) send their documents to the court, claiming Telegram was issuing securities avoiding proper registration. The case is six months long, and Telegram wants to fight till the end.

Telegram Promise IP-based Ban System, Judge Stays Unimpressed

Telegram lawyers answer that the U.S. Judge cannot halt the distribution of GRAM tokens among the non-U.S. investors. In the total sum of $1,7 billion raised during ICO, only $424,5 million in investments is from Americans. Other money came from other countries. Telegram promised the judge that they will develop a solution to block the U.S. addresses. The judge claimed there are still technical solutions like VPN which allow Americans to mimic their true identity. Also, the TON network itself gives users perfect privacy:

“Telegram does not show how withholding the TON Wallet from self-reported U.S. users, who are otherwise anonymous and could simply disclaim having a U.S.-based address, would be efficacious or enforceable. Therefore, any restriction as to whom a foreign Initial Purchaser could resell Grams would be of doubtful real-world enforceability.”

Telegram Lawyers Missed the Point of Court Opinion

Judge also notes that Telegram lawyers managed to completely miss the whole point of the case:

“Focusing upon the Initial Purchasers and their Gram Purchase Agreements misses one of the central points of the Court’s Opinion and Order, specifically, that the ‘security’ was neither the Gram Purchase Agreement nor the Gram but the entire scheme that comprised the Gram Purchase Agreements and the accompanying understandings and undertakings made by Telegram, including the expectation and intention that the Initial Purchasers would distribute Grams into a secondary public market.”

Gabriel Shapiro, blockchain attorney, says to CoinDesk that Telegram put too much effort into their unexistent geolocation restriction system. He thinks that the request for clarity is very significant, but it’s too late to change something now:

“I think it’s clear that Judge Castel agreed with the SEC that Telegram’s post-injunction arguments about extraterritoriality are ‘too little, too late. His response to Telegram’s ‘request for clarification’ also displays admirable technological savvy and skepticism. As he recognized that Telegram’s offer to KYC-gate the TON wallet does not fundamentally limit the distribution of GRAMs through other possible wallets built on the open-source TON blockchain protocol.”

Is There a Quick Solution to the Telegram Open Network (TON) Launch Case?

Telegram said they already preparing the appeal to the decision. Judge Castel’s decision is indeed strange considering that only 30% of the Telegram Open Network (TON) investors were Americans. It is highly doubtful that Judge would be happy if some Iranian or Russian Judge would restrict any law-abiding American businessman from distributing his stocks among the U.S. investors. Before trying to finish the case off, the Judge could change his strong position of denial into a Zen-alike approach. 

Nikolai and Pavel Durov seem like they want to restrict U.S. citizens, also they seem like ready to return $424 million gathered from the U.S. men. Also, worth noting that the majority of Telegram investors shown support Durov brothers and refused to take the money back.

This sounds like a quick solution, instead of receiving a ton of appeals from Telegram team till forever. At the end of the case, the code is ready and on GitHub, the community must be preparing the nodes right now. If Durovs won’t manage to launch the network by themselves, people can handle that. Bitcoin does not need Satoshi Nakamoto to operate. Ethereum Classic does not need Charles Hoskinson to operate. And even Ethereum will survive in case the aliens kidnap Buterin. The chances that Durovs lose a ton of money – probably high. Yet the chance is high that the TON mainnet is almost here.

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