T Skevington and M Bacina
Telegram request for injunction clarification falls on deaf ears
Following the New York District Court's grant of a preliminary injunction preventing Telegram from issuing its GRAM tokens on 24 March 2020, Telegram's request for clarification has been soundly rejected.
Telegram was seeking confirmation that the court's judgment ought not to apply to non-US participants of the ICO, on the basis that those GRAM purchasers "are not U.S. persons and that the Gram Purchase Agreements with these non-U.S. parties were entered into outside the United States through contracts containing foreign choice-of law provisions".
District Judge P. Kevin Castel rejected Telegram's assertions, saying that that Telegram made no argument against the application of the preliminary injunction and that the wording of the injunction, which prohibits Telegram from “delivering GRAMS to any person or entity” has been clear to Telegram since October 2019, and part of the SEC's motion "since its inception".
In a particularly frank judgment, Judge Castel found that:
One would expect a party opposing a preliminary injunction to include an argument in its very fulsome submissions that the grant of the requested injunction would be needless, overbroad, unworkable, apply extraterritoriality, or any other argument it wished. In its opposition to the preliminary injunction, Telegram raised no objection to the form of the injunction
Michael Bacina, Piper Alderman was asked to comment on the extra-territorial effect of the decision by Cointelegraph, saying:
It would be surprising if the SEC would seek to enforce this decision in other jurisdictions given the time and expense required to do that. However, if there is evidence Telegram is distributing tokens in breach of the orders, they may find that the SEC seeks an order for contempt in the U.S. District Court against those involved in the distribution of Grams. Contempt is a serious matter and can result in arrest and jail time.
Further, Michael notes that the judgment only applies to the distribution of GRAM tokens as part of its ICO, not to the launch of the TON blockchain generally. Michael goes on to say:
so Telegram’s plans to launch the mainnet should not be impacted, or be in breach of the orders, so long as Telegram does not distribute GRAMs which were part of the ICO.
The TON community has already indicated that it is considering launching the TON network anyway, commenting to Samuel Haig of CoinTelegraph that:
no one can prevent the launch of TON by any other entity, person, or community, because TON is a decentralized open-source solution.
This leaves Telegram in a difficult position and likely exposed to GRAM purchasers seeking refunds from Telegram for their purchases.