On July 31, the U.S. Securities and Exchange Commission (SEC) announced that it obtained court approval of settlements with Telegram Group Inc. (Telegram) and its wholly-owned subsidiary, TON Issuer Inc. The SEC charged Telegram with violating federal securities laws in their unregistered offering of digital tokens called “Grams.” Telegram is to return more than $1.2 billion to investors and to pay an $18.5 million civil penalty.
According to the SEC, Telegram sold approximately 2.9 billion Grams to 171 initial purchasers worldwide in order to raise capital to finance its business. The SEC alleges that these Grams were securities and that Telegram failed to register them as such. Telegram neither admitted nor denied the SEC’s allegations but consented to the entry of a final judgment. The judgment enjoins Telegram from violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. It also orders Telegram to disgorge $1,224,000,000 in ill-gotten gains from the sale of Grams, pay a civil penalty of $18,500,000, and give notice to the SEC staff before participating in the issuance of any digital assets for the next three years.
“New and innovative businesses are welcome to participate in our capital markets but they cannot do so in violation of the registration requirements of the federal securities laws,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. “This settlement requires Telegram to return funds to investors, imposes a significant penalty, and requires Telegram to give notice of future digital offerings.”
On August 31, the SEC posted a Notice of Covered Action in reference to the case. This notice signals that the SEC is now accepting whistleblower award applications for the case. Individuals who voluntarily provided the SEC with original information that led to this successful enforcement action are entitled to file for a monetary award of 10-30% of the funds the government recouped.
SEC whistleblowers are a vital tool in exposing securities violations. According to Jane Norberg, Chief of the SEC’s Office of the Whistleblower, “the SEC has ordered more than $2.5 billion in financial remedies based on whistleblower information” since the program’s beginning in 2010. Under the Dodd-Frank Act, whistleblowers are also provided anti-retaliation protections, including confidentiality.