Telegram and SEC Put $18.5 Million Gram Settlement Before Federal Court

Telegram and the U.S. Securities and Exchange Commission placed proposed settlement terms before a federal court on June 25, 2020, outlining how the messaging company would end the regulator’s case over its planned Gram digital token.

The proposed final judgment made Telegram Group Inc. and TON Issuer Inc. jointly and severally liable for $1.224 billion in disgorgement, subject to credits for money returned or otherwise owed to purchasers. Telegram Group also agreed to an $18.5 million civil penalty. The defendants consented without admitting or denying the SEC’s allegations, except as to the court’s jurisdiction.

The June 25 filing was a proposed judgment rather than an entered court order. That distinction matters: the terms described the parties’ agreement, but judicial approval remained a separate procedural step.

What the SEC alleged

The SEC sued Telegram and TON Issuer on October 11, 2019. Its complaint alleged that Telegram had raised approximately $1.7 billion by selling about 2.9 billion Grams to 171 initial purchasers in 2018. According to the complaint, 39 U.S. purchasers supplied $424.5 million.

Telegram planned to use the proceeds partly to develop the Telegram Open Network, or TON Blockchain, and support its messaging business. The SEC alleged that the purchase agreements and planned distribution of Grams formed one unregistered securities offering, including the anticipated resale of tokens into public markets.

Those were the regulator’s allegations, not factual findings created by the June 25 settlement filing. Telegram had contested the SEC’s characterization of the planned Gram distribution. The proposed judgment resolved the case without a trial or an admission of liability.

A March 24, 2020 preliminary injunction had already prevented delivery of the Grams. In granting that relief, the U.S. District Court for the Southern District of New York concluded that the SEC had shown a substantial likelihood of proving that the initial sales and contemplated public distribution were parts of a single securities offering.

The financial and issuance terms

The proposed judgment specified a $1.224 billion disgorgement obligation. It allowed an offset of $1.1934 billion for termination amounts already paid to purchasers and for amounts purchasers agreed to lend Telegram instead of accepting immediate repayment. Telegram could receive credit for as much as another $30.6 million in termination payments made within three years, with a possible one-year extension.

The separate $18.5 million civil penalty was due within 30 days after entry of the judgment.

For three years after entry, Telegram would also have to give the SEC 45 days’ notice before participating directly or indirectly in an issuance of cryptocurrencies, digital coins, digital tokens or a similar distributed-ledger asset. The document expressly said that notice would not constitute a request for SEC approval.

Why the filing mattered

The case involved one of the largest token-financing rounds of the 2017–2018 offering cycle. Its importance extended beyond the penalty: the litigation treated private purchase contracts, development work and a planned secondary distribution as an integrated transaction when applying federal securities law.

That did not establish that every digital token or private token agreement was necessarily a security. It did, however, warn issuers that dividing fundraising and token delivery into separate stages might not isolate the later distribution from registration requirements when the stages were economically connected.

No Gram market-price reaction can be measured responsibly for June 25 because Telegram had not launched or delivered the official tokens. Prices for unrelated assets or unofficial claims would not provide a valid event window and are therefore excluded.

Later procedural context

On June 26, 2020, Judge P. Kevin Castel signed the final judgment, and the SEC announced that it had obtained court approval. That next-day approval is included only to clarify the status of the June 25 filing; it does not change what was established on the assigned event date.