T Skevington and M Bacina
Telegram and SEC settle on $18.5M penalty
Telegram and the SEC have settled their long-standing dispute regarding Telegram's ICO, with Telegram agreeing to pay a civil penalty of $18,500,000. In doing so, Telegram does not admit or deny any of the allegations in the SEC's initial Complaint. This settlement follows Telegram's announcement that its work on the Telegram Open Network (TON) project was being discontinued.
The $18 million civil penalty must be paid to the SEC within 30 days of the judgment, which was entered on 11 June 2020. The SEC also leaves the door open for additional civil penalties in future, if the SEC:
obtains information indicating that Defendants knowingly provided materially false or misleading information or materials to the Commission
In addition to the civil penalty, Telegram is liable to disgorge up to $1.22 billion, offset by $1.19 billion paid as “termination amounts” in investors’ purchase agreements and the amounts that some investors loaned to Telegram earlier this year. This payment must be made within four years.
The settlement also provides that Telegram, and all "officers, agents, servants, employees, attorneys, and all persons in active concert or participation with [Telegram]" must give the SEC 45 days prior notice before they participate, even indirectly, in any:
issuance of “cryptocurrencies,” “digital coins,” “digital tokens,” or any similar digital asset issued or transferred using distributed ledger technology.
Telegram's ICO was one of the largest Initial Coin Offerings of 2017/2018 raising a total of USD$1.7 billion. Which just goes to show, prospective issuers need to prioritise compliance early, and can't pretend that compliance issues will be allowed to be swept under the rug if their product or issuance is wildly successful.