SEC Gets Win in Test of Authority to Regulate Cryptocurrency Sales
wsj.com
wsj.com
The Securities and Exchange Commission (“SEC”) seeks to enjoin Telegram Group Inc. and TON Issuer Inc. (collectively “Telegram”) from engaging in a plan to distribute “Grams,” a new cryptocurrency, in what it considers to be an unregistered offering of securities. In early 2018, Telegram received $1.7 billion from 175 sophisticated entities and high net-worth individuals in exchange for a promise to deliver 2.9 billion Grams. Telegram contends that the agreements to sell the 2.9 billion Grams are lawful private placements of securities covered by an exemption from the registration requirement. In Telegram’s view, only the agreements with the individual purchasers are securities. Currently, the Grams will not be delivered to these purchasers until the launch of Telegram’s new blockchain, the Telegram Open Network (“TON”)Blockchain. Telegram views the anticipated resales of Grams by the 175 purchasers into a secondary public market via the TON Blockchain as wholly-unrelated transactions and argues they would not be the offering of securities. The SEC sees things differently. The 175 initial purchasers are, in its view, “underwriters” who, unless Telegram is enjoined from providing them Grams, will soon engage in a distribution of Grams in the public market, whose participants would have been deprived of the information that a registration statement would reveal.
Telegram tried to split a security offering into two parts, neither of which, by itself, had all the components of a security offering. This did not fool anybody.
It's also a crap deal for buyers. If Telegram did an ordinary IPO, you'd get stock, a share in the profits of the company, and voting rights. "Grams" give you none of those things.
Attempts to frame a securities offering as something else are not new. The original Howey case, which defined the law in this area, involved a sale and lease back arrangement of Florida orange groves, with the rights to harvest the oranges being tradeable. Others have tried to pull this stunt with warehouse receipts, chinchillas, minks, diamonds, bullion, pay phones, and condos. The ICO crowd is not as original as it thinks it is.
This is the part I never understood. Even if you could suspend disbelief over the regulatory risk of this whole thing, it still seemed like a fundamentally bad offering.
Unlike many of the SEC’s targets, Telegram had the advice of a Wall Street law firm before raising funds, while the investors in its digital-coin sale included the Silicon Valley venture-capital firm Kleiner Perkins Caufield & Byers, as well as executives from Fortress Investment Group and SoftBank Group Corp.
The ultimate outcome of this is still TBD. It's entirely possible that Telegram will settle and be able to release their coin, it's a question of how much of the money they will have to disgorge and what penalties the SEC will impose to extract that settlement.
Telegram raised a TON of money, so I expect they will eventually get to a settlement. It's really just a question of what terms. Depending on those terms, their strategy was either a bad or good decision.
Telegram made a mistake by taking any US money whatsoever. If they avoided that they would have had much easier time.
Blockchain doesn’t care about borders, it’s just math. US is playing a losing game but it’s fine - the software doesn’t care.
centralized businesses absolutely do. Thinking that they can skirt securities law by saying "blah blah blockchain" is comically stupid. even calling centralized services "blockchain" misses the entire point of it in the first place. centralized icos are not decentralized, not censorship resistant and are not permissionless. the only reason they are doing it on a blockchain instead of a database is either because they are trying to avoid securities regulations or they are trying to sell a buzzword to suckers.
if you are centralized "blockchain" does not protect you from regulators coming in and bankrupting your company.
You shouldn't have to leave the US to use a particular exchange.
Which means you consent to the decisions of the majority.
There is no contractual agreement that you surrender your agency when you decide to vote.
Not casting a vote is a choice not to vote which is also a form of opinion.
Laws are imposed on people with or without their consent. At no point does a vote taking place confer that everyone consented.
Some law are unethical some are not, even if they are voted by a (super) majority.
But by living in a country, you consent to the laws of the country applying to you. That's the social contract you sign by being a citizen or resident in a country.
Your choice is to not live in that country or vote to change the specific laws that bother you.
Then all laws are consensual, and thus it's impossible for a law to be unjust.
That goes for anti-gay, anti-abortion and racist laws.
Another way to look at it is that you have an inherent right to live in your own country, without having to meet any conditions others impose on you. Thus you can choose to live in your own country and not consent to all laws.
i agree if the people of telegram want to never step foot on US soil and want to never step foot on the soil of a country that has extridition treaties with the united state, they can feel free to blatantly ignore united states law. good luck with that one. i doubt that will end well for you.
https://www.justice.gov/usao-ndca/pr/russian-national-and-bi...
> When the conduct outside the United States had a substantial effect in the United States or upon United States citizens.
So, as long as you make sure not to affect the US or US citizens, you should be safe from the SEC. However, who knows how broadly this rule will be read. If you don't KYC, you could accidentally affect a US citizen, and I don't see an exception here for that case.
(I don't know if this applies to all SEC rules or just 77q(a), but it seems prudent to assume that if you are running afoul of an SEC rule you be very sure that no US citizen uses your services.)
And comparing real volume against the volume of synthetic instruments like Bitmex's perpetual swap is comparing apples to oranges. There is no fiat currency on those exchanges. There is literally zero real liquidity, simply the mechanics of liquidity that can only be cashed out on a reputable exchange.
1mm would even go through on Gemini. Even for crypto, that's tiny. You bring up an important point: have you ever noticed the correlation between fees and volume? Bitmex is the best example; they literally pay the maker of each trade and the taker pays an order of magnitude less than KYC exchanges.
Bitmex and Binance are doing well, no doubt, and Bitmex likely has higher revenue than Coinbase's exchange and Kraken combined, in part due to their built in market maker and de-leveraging mechanism. However, the numbers you are looking at will throw you off by an order of magnitude from true values for the argument you are trying to make. The big legitimate exchanges are doing quite well considering the market, although the volume is seemingly consolidating into Coinbase and Kraken.
If you know how to code, check out the entropies. Bitmex volume is real, but synthetic. Binance volume... maybe 40% real, being generous. There was a time when it was more than 90% fake, like most of the exchanges on CoinMarketCap. They literally faked it until they made it. No need to get feisty about it, just fact checking.
But those things have been around before crypto anyway like the weekend dow : https://www.ig.com/en/indices/markets-indices/weekend-wall-s...
Cme just launched options on bitcoin futures. That could bring a lot of trading back to the us over night, once wsb can bet on those options.
Why anyone thought software and math was going to take precedence over nation state authority and power is bewildering. Insert the xkcd about rubber hose encryption here.