SEC Depositions Shed Light-weight on Telegram’s $1.7B Token Sale

Telegram CEO Pavel Durov pushed back again versus a U.S. Securities and Trade Commission (SEC) attorney’s speculation that his company’s 2018 token sale was meant to refill its money reserves.

In the course of an 18-hour deposition, Durov disputed in unique SEC lawyer Jorge Tenreiro’s assert that the sale would assistance Telegram pay for servers. This assert is a main section of the SEC’s argument in the ongoing scenario that Telegram was marketing unregistered securities. 

Acсording to Durov, from the beginning he has been funding Telegram with proceeds from the sale of his earlier creation, popular Russian social network Vkontakte, or 

“Typically, I would not different my individual personal savings from the demands of Telegram Messenger,” Durov explained, in accordance to a transcript of the Jan. 7-8 deposition. “If I see that Telegram demands a lot more resources, I would fortunately make investments a lot more for the reason that I’m a man or woman that prefers not to possess any serious estate.” 

The recently introduced transcripts of the SEC’s depositions of Durov, Telegram Vice President Ilia Perekopsky and economical companies specialist Shyam Parekh give a rare window into the logic and the mechanics at the rear of the $1.7 billion token sale. 

Rather than fundraising for the business, marketing the tokens recognized as grams to traders was a way to make guaranteed enough of them are staked to safe the proof-of stake TON blockchain, Durov claimed.

“And only immediately after that, recognizing that we now have access to specified cash and at the same time we are limited in our means to pursue alternative prospective revenue streams, owing to the reality that we are hectic building TON Blockchain, we decided that we could use some of the cash for some of the functions that I described,” he explained, referencing the expenses of the Telegram messaging app.

Requested why Telegram didn’t choose for fairness fundraising, which Durov contemplated at some point in advance of the token sale, he explained: “Because we have been worried that marketing fairness could affect the company’s integrity and its values, and transform the company’s ethos and what it stands for.”

Important signs

The SEC sued Telegram in October, accusing the business of marketing unregistered securities and buying it to halt the start of TON. The initially listening to for the scenario is scheduled Feb. 18 in the U.S. District Court docket of the Southern District Of New York. Earlier this week, the Chamber of Electronic Commerce and the Blockchain Association filed buddy-of-the-courtroom briefs to the courtroom in support of Telegram.

In accordance to Durov’s deposition, Telegram has achieved about 300 million regular monthly active users, with the large person base performing as TON’s key marketing point at the time of the billion token sale.

Having said that, as the courtroom method with the SEC approaches the initially listening to in February, Telegram a short while ago announced that a wallet app for the foreseeable future gram tokens will not be developed into the messaging app at the time of the start. It didn’t rule out, even so, that the wallet will be a section of the messenger at some point in the foreseeable future. 

Concerning 25 and 30 workforce are working on the startup’s main group, juggling in between coding for TON and supporting the messenger app, Durov explained.  

Yet another section of the SEC’s argument is that traders in TON only acquired grams to provide them for financial gain, as they would do with regular securities, and not to use them on the TON blockchain, for instance, to stake them and come to be validators of the proof-of stake network. 

Telegram did not make endeavours to make guaranteed traders in the token sale would be the blockchain’s validators as effectively, but there was curiosity from a selection of traders in doing so, Durov explained. 

“I imagine we obtained curiosity from – effectively, at least a number of validators – prospective validators, it could be a dozen, and we have been actively, you know, processing these types of inquiries and requests for validation in early October when this method was interrupted by this started litigation,” he explained.

Perekopsky also explained that many traders experienced been asking about validation. “Especially the closer to the start we bought, the a lot more concerns have been about that, and they have been sending e-mails asking in Telegram, calling, asking in meetings,” he explained. 

Trader gatekeeping

The SEC also argues Telegram failed to report its fundraising properly as while the business filed for an exemption from registration beneath Regulation D in February and March 2018, cash held coming Telegram’s way immediately after the filings’ dates. 

Durov, Perekopsky and Parekh explained in their depositions that a important section of the $1.7 billion arrived immediately after the sale rounds have been formally around, but defined the order agreements for all those people cash experienced been presently signed at the time of submitting and it just took some traders a lot more time to wire the cash. 

In accordance to Parekh, each the initially and second spherical of the token sale was oversubscribed, specially the initially, February 2018 pre-sale spherical when the selection of fascinated traders exceeded the $850 goal sum a few to 4 situations. 

It was Durov, Perekopsky and Telegram’s head of global, John Hyman, who decided who to allow in, Perekopsky and Parekh explained. 

The criteria have been investors’ standing and exactly where they come from, Perekopsky defined. “We experimented with to diversify traders by geography, so we failed to want 1 unique region of the entire world like to dominate in our record of traders.”

The same contemplating was at the rear of picking out the initially crypto exchanges Telegram contacted about listing grams: In accordance to Perekopsky, he individually achieved out to Binance, Coinbase and OKex.

“As far as I know, Coinbase was a lot more targeted on [the] United States. Binance is a global player in many international locations. OKex is a lot more targeted on Asia,” Perekopsky defined.

Pretend traders?

Telegram’s executives also explicitly denied in their depositions a business known as Gram Asia invested in TON, seemingly contradicting Gram Asia’s assert that it was “the largest holder of grams” on the continent.

That assert appeared to be supported this previous summer when Japan-based mostly exchange Liquid supplied to provide foreseeable future grams to its users for $4 every (as opposed to $.37 and $1.33 in the 2018 main offerings), declaring it experienced partnered with Gram Asia on the “exclusive sale.”

The entity is stated in the deposition many situations as the SEC alleged Telegram was assisting the secondary current market of grams thrive, which, in the agency’s reasoning, supported the concept that grams have been securities.  

Last week, Liquid canceled the sale, declaring that as TON did not start by an Oct. 31, 2019 deadline, the tokens would not be sent and that it experienced refunded potential buyers. The exchange would not say whether Gram Asia experienced everything to do with the determination. 

Requested if Gram Asia was a TON investor all through his deposition, Durov explained: “I never imagine we have Gram Asia as a occasion in any of the agreements we could have entered into.”

Concerning the sale on Liquid Perekopsky, who was in charge of working with traders, explained to the SEC: “Gram Asia was not our investor, so it was not distinct what we can do in this condition.”

In accordance to other courtroom files, in a message exchange in July 2019, Durov and Perekopsky talked over the announcement of the token sale on Liquid and how to react to it. “Who is this Kim man and why is he telling TC that we gave him our acceptance for that?” Durov asked, referring to Gram Asia’s CEO, Dongbeom Kim. 

“Assholes, those people Liquid people today,” Durov wrote. “Using the details vacuum for self-marketing. And this Kim man, way too.”

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