SEC Depositions Shed Light on Telegram’s $1.7B Token Sale

Telegram CEO Pavel Durov pushed again towards a U.S. Securities and Change Fee (SEC) lawyer’s hypothesis that his firm’s 2018 token sale was meant to refill its money reserves.

Throughout an 18-hour deposition, Durov disputed specifically SEC lawyer Jorge Tenreiro’s declare that the sale would assist Telegram pay for servers. This declare is a core a part of the SEC’s argument within the ongoing case that Telegram was promoting unregistered securities. 

Acсording to Durov, from the start he has been funding Telegram with proceeds from the sale of his earlier creation, fashionable Russian social community Vkontakte, or VK.com. 

“Usually, I would not separate my private financial savings from the wants of Telegram Messenger,” Durov stated, in line with a transcript of the Jan. 7-Eight deposition. “If I see that Telegram wants extra sources, I’d fortunately make investments extra as a result of I am an individual that prefers to not personal any actual property.” 

The newly launched transcripts of the SEC’s depositions of Durov, Telegram Vice President Ilia Perekopsky and monetary companies specialist Shyam Parekh supply a uncommon window into the logic and the mechanics behind the $1.7 billion token sale. 

Reasonably than fundraising for the corporate, promoting the tokens often known as grams to traders was a manner to verify sufficient of them are staked to safe the proof-of stake TON blockchain, Durov claimed.

“And solely after that, realizing that we now have entry to sure funds and on the similar time we’re restricted in our capability to pursue various potential income streams, as a result of the truth that we’re busy constructing TON Blockchain, we determined that we might use a number of the funds for a number of the functions that I described,” he stated, referencing the bills of the Telegram messaging app.

Requested why Telegram didn’t go for fairness fundraising, which Durov contemplated sooner or later earlier than the token sale, he stated: “As a result of we had been involved that promoting fairness might have an effect on the corporate’s integrity and its values, and alter the corporate’s ethos and what it stands for.”

The SEC sued Telegram in October, accusing the corporate of promoting unregistered securities and ordering it to halt the launch of TON. The primary listening to for the case is scheduled Feb. 18 within the U.S. District Courtroom of the Southern District Of New York. Earlier this week, the Chamber of Digital Commerce and the Blockchain Affiliation filed friend-of-the-court briefs to the court docket in help of Telegram.

In accordance with Durov’s deposition, Telegram has reached about 300 million month-to-month lively customers, with the massive person base performing as TON’s essential promoting level on the time of the billion token sale.

Nonetheless, because the court docket course of with the SEC approaches the primary listening to in February, Telegram lately introduced {that a} pockets app for the longer term gram tokens is not going to be constructed into the messaging app on the time of the launch. It didn’t rule out, nonetheless, that the pockets shall be part of the messenger sooner or later sooner or later. 

Between 25 and 30 workers are engaged on the startup’s core crew, juggling between coding for TON and supporting the messenger app, Durov stated.  

One other a part of the SEC’s argument is that traders in TON solely purchased grams to promote them for revenue, as they’d do with regular securities, and to not use them on the TON blockchain, for instance, to stake them and grow to be validators of the proof-of stake community. 

Telegram didn’t make efforts to verify traders within the token sale could be the blockchain’s validators as effectively, however there was curiosity from a variety of traders in doing so, Durov stated. 

“I feel we acquired curiosity from – effectively, no less than a number of validators – potential validators, it might be a dozen, and we had been actively, you realize, processing such inquiries and requests for validation in early October when this course of was interrupted by this began litigation,” he stated.

Perekopsky additionally stated that many traders had been asking about validation. “Particularly the nearer to the launch we acquired, the extra questions had been about that, and so they had been sending emails asking in Telegram, calling, asking in conferences,” he stated. 

The SEC additionally argues Telegram didn’t report its fundraising correctly as whereas the corporate filed for an exemption from registration beneath Regulation D in February and March 2018, funds stored coming Telegram’s manner after the filings’ dates. 

Durov, Perekopsky and Parekh stated of their depositions {that a} vital a part of the $1.7 billion got here after the sale rounds had been formally over, however defined the acquisition agreements for all these funds had been already signed on the time of submitting and it simply took some traders extra time to wire the funds. 

In accordance with Parekh, each the primary and second spherical of the token sale was oversubscribed, particularly the primary, February 2018 pre-sale spherical when the variety of traders exceeded the $850 goal sum three to 4 occasions. 

It was Durov, Perekopsky and Telegram’s head of worldwide, John Hyman, who determined who to let in, Perekopsky and Parekh stated. 

The factors had been traders’ popularity and the place they arrive from, Perekopsky defined. “We tried to diversify traders by geography, so we did not need one specific area of the world wish to dominate in our listing of traders.”

The identical considering was behind selecting the primary crypto exchanges Telegram contacted about itemizing grams: In accordance with Perekopsky, he personally reached out to Binance, Coinbase and OKex.

“So far as I do know, Coinbase was extra targeted on [the] United States. Binance is a world participant in lots of international locations. OKex is extra targeted on Asia,” Perekopsky defined.

Telegram’s executives additionally explicitly denied of their depositions an organization known as Gram Asia invested in TON, apparently contradicting Gram Asia’s declare that it was “the biggest holder of grams” on the continent.

That declare gave the impression to be supported this previous summer time when Japan-based change Liquid provided to promote future grams to its customers for $four every (in comparison with $0.37 and $1.33 within the 2018 major choices), saying it had partnered with Gram Asia on the “unique sale.”

The entity is talked about within the deposition a number of occasions because the SEC alleged Telegram was serving to the secondary market of grams thrive, which, within the company’s reasoning, supported the concept grams had been securities.  

Final week, Liquid canceled the sale, saying that as TON didn’t launch by an Oct. 31, 2019 deadline, the tokens wouldn’t be delivered and that it had refunded consumers. The change wouldn’t say whether or not Gram Asia had something to do with the choice. 

Requested if Gram Asia was a TON investor throughout his deposition, Durov stated: “I do not suppose we’ve Gram Asia as a celebration in any of the agreements we might have entered into.”

Concerning the sale on Liquid Perekopsky, who was in control of working with traders, instructed the SEC: “Gram Asia was not our investor, so it was not clear what we will do on this state of affairs.”

In accordance with different court docket paperwork, in a message change in July 2019, Durov and Perekopsky mentioned the announcement of the token sale on Liquid and how one can react to it. “Who is that this Kim man and why is he telling TC that we gave him our approval for that?” Durov requested, referring to Gram Asia’s CEO, Dongbeom Kim. 

“Assholes, these Liquid folks,” Durov wrote. “Utilizing the information vacuum for self-promotion. And this Kim man, too.”