- The encrypted messaging app Telegram has abandoned its cryptocurrency project after a months-long court battle with the Securities and Exchange Commission (SEC), the company’s founder and chief executive, Pavel Durov, wrote in a blog post.
- The company caught the SEC's attention when it raised $1.7 billion from investors, promising them it would distribute its tokens, called Grams, once it develops the blockchain software.
- A federal judge in March issued a preliminary injunction barring the launch of the company's Telegram Open Network (TON) platform. "The Court ... finds that the delivery of Grams to the Initial Purchasers, who would resell them into the public market, represents a near certain risk of a future harm, namely the completion of a public distribution of a security without a registration statement," Judge Kevin Castel of the U.S. District Court for the Southern District of New York, wrote in his decision, according to Cointelegraph.
The crypto project's demise — and Durov's comments announcing it — cast a spotlight on the U.S.'s influence on the global financial system.
"We are still dependent on the United States when it comes to finance and technology," Durov wrote, according to The Wall Street Journal. "This may change in the future. But today, we are in a vicious circle: you can't bring more balance to an overly centralized world exactly because it’s so centralized."
The SEC filed an emergency action in October and obtained a temporary restraining order against Telegram, arguing that, because the company’s tokens function as securities, they should have registered with the regulator.
A judge in January denied the SEC’s attempt to force Telegram to reveal its bank records — and thus how it spent its investors' $1.7 billion.
Telegram appealed the judge's March decision and vowed to roll out the TON platform by April 2021, offering investors a $1.2 billion refund or 110% a year after launch, according to TechCrunch.
Bart Stephens, co-founder and managing partner of crypto investment firm Blockchain Capital, told The Wall Street Journal the Telegram case is indicative of the offshore movement of innovation in blockchain and financial technology. "Founders are moving projects outside of the U.S. and many projects are blocking U.S. investors, even sophisticated [venture capital] firms," he said. "China is likely the ultimate beneficiary."
Durov aired his frustration in his blog post, comparing his company's potential to a gold mine.
"Imagine that several people put their money together to build a gold mine – and to later split the gold that comes out of it," he wrote, according to TechCrunch. "Then a judge comes and says: 'These people invested in the gold mine because they were looking for profits. And they didn't want that gold for themselves, they wanted to sell it to other people. Because of this, they are not allowed to get the gold.'
"This is exactly what happened with TON (the mine) and Grams (the gold)," Durov added. "A judge used this reasoning to rule that people should not be allowed to buy or sell Grams like they can buy or sell Bitcoins."
Telegram, which announced last month that it serves 400 million monthly users, is continuing operations and the SEC lawsuit remains active.
"We are leaving it to the next generation of entrepreneurs and developers to pick up the banner and learn from our mistakes," Durov wrote, according to Bloomberg. "We hope that you succeed where we have failed."