SDNY Issues Injunction against Digital Coin Distributor

The U.S. District Court for the Southern District of New York ("SDNY") issued an injunction against a digital coin distributor for offering unregistered securities.

According to the District Court Order and Opinion, the SEC alleged that Emirates-based Telegram Group Inc. and TON Issuer Inc. ("Telegram") were involved in the sale of unregistered securities (cryptocurrencies called "Grams"). The Court found that the SEC "has shown a substantial likelihood of success in proving that the 2018 Sales were part of a larger scheme, manifested by Telegram’s actions, conduct, statements, and understandings, to offer Grams to the Initial Purchasers with the intent and purpose that these Grams be distributed in a secondary public market, which is the offering of securities under SEC v. W.J. Howey Co."

Specifically, the Court found that Telegram had offered 2.9 billion Grams to 175 purchases for $1.7 billion. The Court found that because Telegram knew that purchasers would not agree to pay that much for the Grams, Telegram developed a scheme to allow initial purchasers to resell the Grams in public markets.

The Court enjoined Telegram from selling Grams while the litigation continues.