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Battle between Telegram and SEC May Push Crypto Legislation, Blockchain Association Says

UTC by Jeff Fawkes · 4 min read
Battle between Telegram and SEC May Push Crypto Legislation, Blockchain Association Says
Photo: Depositphotos

The New York Judge Kevin Castel claims that Telegram’s TON Grams are securities. But Blockchain Association’s (BA) Kristin Smith put out the fact that Grams only arrive under the security name while being not a security. BA filed the letter of support to the court earlier this week.

During a recent interview with Coindesk, Blockchain Association executive director Kristin Smith claimed that not everything is lost for Durov brothers. She believes that the Telegram team did an offering according to financial advice from the American regulators (including the SEC). Per Kristin, the outcome of the case is useful in putting the pressure on Congress regarding blockchain deals:

“I think the outcome of this case can help put pressure on Congress to step in a write a new law that would provide a path forward.”

She adds that there are three ways of getting the proper blockchain legislation from the American government:

“We hope that instead of getting clarity through the court decisions, the SEC through the rulemaking process or Congress through legislation, will provide a really clear pathway for such projects to be developed and launched…

…there will be an appetite among lawmakers to find ways to support innovations and growing industries as we get to the recovery, and I think we’ll see some positive legislation when that happens. When there are national and international challenges like the coronavirus, it’s ultimately the innovation that helps get the economy out of the crisis and moving again.”

It’s worth noting that the classic banking system has some flaws, like huge fees or substantial waiting times of the regular payments. Especially, when it comes to cross-border payments. Salvation comes as soon as legitimate blockchain solutions step in, blockchain adherents say.

‘Not a Flamethrower’ Argument Didn’t Work with Judge Castel

The New York District Court Judge Kevin Castel twice refused to grant Telegram the ‘right to distribute’ tokens among initial investors. The Judge claims that even the investors from other countries cannot buy, sell and hold the TON’s Grams. Blockchain Association first jumped in the battle at the beginning of January. Claiming that TON ICO was only looking as the Securities offering, but in fact – it’s not.

BA’s Kristin Smith claims Telegram lawyers were strictly following the regulator’s advice. Then, Association asked Judge Castel to dismiss the SEC’s angry allegations towards TON.

Despite peaceful rhetoric, the Association didn’t reach any consensus with the Judge. More than that, he strengthened his position. This is to obstruct the smooth TON launch worldwide, not only in the U.S. and to bring the Durov brothers to responsibility.

The issue is that there are tiny details preventing TON’s Gram from fitting security token definition.

When Elon Musk was selling his Boring Company’s Not a Flamethrower, they had to write this into the postal declaration: “Not a Flamethrower”. Despite looking like flamethrower and producing fire, the device lacks in power characteristics to be classified as a deadly weapon. However, it looks exactly as if it was a fully-featured flamethrower. So, that’s why many of the international custom workers had questions. People who were receiving the shipment from America had to explain.

Titans Fighting: Telegram and SEC Could Destroy SAFT Model’s Reputation

SAFT is the legislative framework development useful for institutional investors and blockchain ventures. The crypto industry was thinking that such a model perfectly fits (and improves) the classic token issuance model. It has all the needed means to allow institutional capital to flow in the token economy. The framework fits badly when it comes to the classic ICO model. There, the token issuers often sell the tokens to retail investors, not VC’s. The SEC didn’t admire or halt the framework, remaining in silence upon the actual case beginning.

Per Benjamin Beaton from Squire Patton Bogs law agency, blockchain ventures were trying hard to fit their projects to SAFT. But the case against Telegram shows that the SEC must issue some statements regarding the model usage.

“Not all SAFTs are designed exactly the same and just because it doesn’t work for Telegram it doesn’t mean this model won’t work in other areas. SAFT will survive in some form, but developers and investors are really going to look very hard at the SAFT before deciding to move forward,” explained Benjamin.

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