Social media giant, Telegram is seeking to appeal a recent US Federal Court ruling which was in favor of the SEC to halt distribution of GRAM tokens, until at least the trial. This is not a good news for the social media giant in advance of the trial.
In response to the court’s earlier preliminary injunction, Telegram has filed a brief notice of appeal with the court of appeal for the second circuit. The injunction had tentatively agreed with the SEC’s argument that the contracts governing the issuance of GRAM tokens seem to qualify as securities under the Howey test.
The court stated that:
“For reasons that will be more fully explained, the Court finds that the SEC has shown a substantial likelihood of success in proving that Telegram’s present plan to distribute Grams is an offering of securities under the Howey test to which no exemption applies.”
Telegram had raised $1.7 billion in an ICO conducted in 2018 for a promise to deliver 2.9 billion GRAM tokens to investors. The social media giant argued that the agreement was lawful under the private placement of securities covered by a Regulation D 506(c) exemption.
The GRAM tokens were sold under a so-called Simple Agreement for Future Tokens (SAFT), which is an investment contract designed to provide a compliant alternative to an ICO. However, the SEC argued in October that the token sale was illegal since GRAMS constituted securities under US law, and hence must be registered with the agency.
Meanwhile, at least one expert, is not optimistic about Telegram’s chances in their appeal. Philip Moustakis, a former SEC counsel said Telegram will have to prove to the appeal court that the district court made some clear error of law. He said the standard of review on appeal is abuse of discretion.
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