CFTC Told Telegram Court Commodity Status Would Not Displace Securities Law

The Commodity Futures Trading Commission’s Office of General Counsel filed a three-page letter in the federal case over Telegram’s planned Gram token on February 18, 2020, telling the court that calling a digital currency a commodity did not answer whether securities law also applied.

The filing mattered because it rejected a simple either-or theory of United States digital-asset jurisdiction. Telegram had argued that Gram would be a commodity rather than a security. The CFTC lawyers agreed with the general proposition that digital currency is a commodity, but said many securities also fit the Commodity Exchange Act’s definition of commodity. A token’s commodity status therefore was not an exemption from the Securities Act of 1933.

Commodity status was not an escape hatch

The letter was submitted as docket entry 203 in SEC v. Telegram Group Inc. after Judge P. Kevin Castel invited the CFTC’s legal office to address issues implicating its interests. It distinguished the CFTC’s broad commodity definition from the scope of the agency’s regulatory authority.

Under the letter’s account, the CFTC has exclusive jurisdiction over most commodity derivatives, such as futures and swaps. Its authority over underlying cash commodity markets is narrower and generally includes policing fraud and manipulation. Securities-law authority remained preserved for the Securities and Exchange Commission.

That division meant the relevant question was not merely whether Gram could be described as a commodity. The court still had to evaluate whether the planned distribution involved a security under the Securities Act, including the investment-contract analysis associated with the Howey test.

The agency position was deliberately narrow

The filing carried important qualifications. Deputy General Counsel Robert A. Schwartz said the submission represented the views of the CFTC’s Office of General Counsel, not necessarily the Commission or any individual commissioner. The office also expressly declined to decide whether Gram itself was a security or commodity for purposes of the case.

The letter further recognized that classification could change with facts and time. It said an asset created as an investment contract might mature into a store of value or means of exchange whose holders were no longer relying on others’ efforts for profit. That was a legal possibility, not a finding that Gram had reached such a stage on February 18.

This distinction was consequential for token issuers using agreements that promised delivery of a future network asset. Describing the eventual token’s intended use did not, by itself, resolve how fundraising contracts, purchaser expectations and the planned onward distribution should be analyzed.

A $1.7 billion distribution remained blocked

The SEC’s October 11, 2019 complaint alleged that Telegram and its subsidiary TON Issuer had raised more than $1.7 billion and sold approximately 2.9 billion Grams to 171 initial purchasers worldwide. The agency said more than 1 billion Grams went to 39 United States purchasers. Those were allegations in the event-day record, not findings entered by the court on February 18.

Telegram had not delivered the Grams. A consent order barred offering, selling, delivering or distributing them while the litigation proceeded. The preliminary-injunction hearing was scheduled to begin on February 19, 2020 after an earlier timetable was changed. The February 18 letter therefore refined the legal framework immediately before argument; it did not decide the case or authorize the network launch.

There was also no verifiable Gram spot-market price to report for February 18. The planned tokens had not been distributed into an operating public market, so exchange quotations or percentage-return claims would not provide a defensible measure of the filing’s effect.

Later context

On March 24, 2020, Judge Castel granted the SEC’s request for a preliminary injunction. That later ruling is separate from what was known on February 18, when the CFTC legal office had established only that commodity and securities classifications were not mutually exclusive and had left Gram’s status to the court.