Institutional and other large investors are always ready to invest in the next big deal, especially one in technology or digital assets that they think they can resell for a large profit. The people who own a popular app promoting secret, disappearing messages, Messenger, have entered the cryptocurrency business with a product called Gram. However, they failed to register the investment with the SEC. In June the courts approved an SEC settlement with Telegram Group and TON Issuer, Inc. Investors will be reimbursed $1.2 billion, along with the government receiving $18.5 million in a civil penalty. SEC News Release 2020

Allegedly, Telegram “… [R]aised capital to finance its business by selling approximately 2.9 billion Grams [digital tokens or coins] to 171 initial purchasers worldwide.” The SEC received “a preliminary injunction barring the delivery of Grams.” The court found “…that the SEC had shown a substantial likelihood of proving that Telegram’s sales were part of a larger scheme to unlawfully distribute the Grams to the secondary public market.” SEC News Release 2020

Social Media Giants Expand into Digital Currency

“Telegram Group Inc. is a privately owned British Virgin Islands company with its principal place of business in Dubai, United Arab Emirates. Its primary product is Messenger, an encrypted messaging application with approximately 300 million monthly users worldwide that has been called the ‘cryptocurrency world’s preferred messaging app.’” SEC Complaint

TON Issuer Inc is also a Virgin Islands company that is wholly owned by Telegram.

The founder of the largest European based social media platform, Pavel Durov, a Russian, St. Kitts and Nevis citizen, owns 100% of Telegram Group. His brother, Dr. Nikolai Durov is CTO at Telegram.

Secret Chats with Messenger

“… Telegram promotes the ‘Secret Chats’ of Messenger, which allows users to ‘send all types of disappearing content,’ … Telegram similarly boasts that it has ‘disclosed 0 bytes of user data to third parties, including governments.’ …[M]ore than 84% of projects involving blockchain technology have an active community of Messenger users. …Messenger has also been cited as a popular messaging app for individuals engaged in illicit activities.” SEC Complaint

A New Twist in Digital Coin Offerings

Instead of reeling in investors with the promise of an ICO (Initial Coin Offering), Telegram sold its Grams in order to fund the development of TON’s platform and launch. TON, Telegram Open Network, was advertised as the next generation of blockchain systems but was not yet developed at the time of the first two offerings of Grams.

Technology Investment vs. Purchase Agreement for Currency

SEC claimed that the Gram Purchase Agreement was not a purchase agreement for currency, but rather a technology investment agreement. All but three of the U.S. purchasers of grams bought more than 2.5 million Grams each. In other words, they weren’t planning to use the currency, but rather resell it as an investment. And the $1.7 billion raised in the offering far exceeded what was necessary to develop TON.

In 2018 one U.S. investor purchased $27.5 million worth of Grams when “the tokens had no use and would have no use at the time of launch, demonstrating its intent to profit from the potential increase in value of Grams.” SEC Complaint And what an increase he was betting on.

The Gram investment sales pitch included estimated values of “plausible 10-50x return.”

Did you see the warning signs on Gram? Of course. But what if Grams had made it to the secondary market where everyday investors would have an opportunity to purchase them? Would you see a problem then? The signs get harder to see as traditional securities sellers carry the torch. The Telegram case is a good example of what happens behind the scene before other investors get involved.

Beware of Investment Scams

Stay focused and diligent before investing. Fraudulent deals are everywhere. Whether you are exploring securities, oil and gas interests, or cryptocurrency, do your research. Take time to determine if your salesperson and the securities offering are registered with the state or SEC. Check the history of the people in the deal, as well as any past or pending lawsuits.

We hope all your cryptocurrency and oil and gas investments are safe and profitable. But if you find yourself searching for an experienced oil and gas litigation lawyer or a commercial litigation lawyer, we are here to help.

Mark Alexander
5080 Spectrum, Suite 850E
Addison, Texas 75001
Ph: 972.544.6968
Fax: 972.421.1500
E-Mail: mark@markalexanderlaw.com
www.commerciallitigationtexas.com
www.oilandgasfraudlawyer.com

Photo of Mark Alexander Mark Alexander

Mark Alexander is the principal of the Firm. In 1979, he earned his undergraduate degree at Wayne State University in Detroit, Michigan, and his law degree at Thomas M. Cooley, Lansing, Michigan, in 1985 (Academic Dean’s List).

Mr. Alexander is licensed…

Mark Alexander is the principal of the Firm. In 1979, he earned his undergraduate degree at Wayne State University in Detroit, Michigan, and his law degree at Thomas M. Cooley, Lansing, Michigan, in 1985 (Academic Dean’s List).

Mr. Alexander is licensed to practice law by the Supreme Courts of the States of Texas (1985) and Michigan (1988), and holds licenses before the following courts: Supreme Court of Texas; Supreme Court of Michigan; United States Court of Appeals for the Fifth and Sixth Circuits; United States District Courts for the Northern, Southern, and Western Districts of Texas; and the Eastern and Western Districts of Michigan. In addition he has been admitted in several other Federal and State Courts to represent Texas clients, who have been engaged in significant litigation in those jurisdictions.

Courts have appointed Mr. Alexander to serve as a receiver, and facilitator in complex litigation lawsuits. Additionally he has been a frequent lecturer for organizations on a variety of business law matters.  Mr. Alexander has also served as an Adjunct Professor of Business Law at Henry Ford College in Dearborn, Michigan. Significantly, Mr. Alexander is AV-rated by Martindale-Hubbell, the highest rating an attorney can receive.

Additionally, due to the complex nature of its practice, the Firm has an on-going relationship with a legal group that provides litigation support services. This group is comprised of a team of attorneys, whose combined capabilities allow the group to provide nearly 24-hour coverage at crucial times for any case. This arrangement is but one example of the innovative, cutting-edge approach that the Firm provides to its clients in order to improve representation at reduced legal fees.