(Reject Double up) Commissioner Hester Peirce Says SEC Made Error in Taking Legal Action Against Telegram TON Crypto Project

Hester Peirce, a crypto-friendly SEC commissioner, has come out saying that the US SEC (Securities and Exchange Commission) made an error in taking legal action that resulted into the shutdown of the TON (Telegram Open Network). Telegram designed the TON cryptocurrency project to be a secure payment system, offering an alternative to Mastercard and Visa. The TON project was a similar fashion to Facebook’s Libra project, which also faced significant scrutiny.

Good, Bad, And Lessoned Learned on Court Ruling 

Speaking at the virtual Singapore Blockchain week, held on July 21, Peirce has criticized the SEC’s legal action against Telegram. She stated that last month’s legal settlement with Telegram was an unsatisfying series of enforcement actions that the SEC used, which she did not support from the beginning. She said that the settlement created an unsatisfying result that led to the abandonment of the TON project.

She told Blockchain Association Singapore that she refused to support the settlement against the TON cryptocurrency project because she did not support the underlying action.

Peirce stated that Telegram developed an operational network, designed in good faith to comply with the federal securities laws in raising funds to build the network, and engaged with the SEC representatives.

However, she did not like how things went down. In her view, Telegram’s decision to sell Gram under Simple Agreement for Future Tokens (SAFT) offering structure should have protected the TON project from securities violations. With the SAFTs, investors buy the rights to tokens, which are distributed much later or after the TON network launches.

Based on this idea, SAFT structure did not intend investors to buy Telegram’s tokens for speculative purposes but would use them on the network after its launch. In theory, this would perfectly sidestep US securities and imply that Telegram did not have to register with the SEC.

However, the SEC claimed the SAFT did not make a difference as the regulator argued that Telegram was still selling securities. The court appeared to favor SEC’s argument. As a result, the court prolonged delays to the network and such delays prompted TON’s collapse.

Peirce said that the SEC applied the so-called the Howey test and consequently saw it differently and worked to convince the court that the agreement for the Gram token counted as securities.  She stated that she did not support the settlement nor support the message saying that distributing tokens basically involves a securities transaction.

Telegram Abandoned the Blockchain Project

Since October last year, the SEC had initiated a legal battle against Telegram, securing injunctions against the launch of the TON network. The regulator took Telegram to court, claiming that its ICO, which ran and raised $1.7 billion in 2018, was an unregistered securities offering and, therefore, was illegal. The court case went on until Telegram had to eventually return most of the money to investors. Telegram abandoned its TON project in May 2020. In June, Telegram settled with the SEC and agreed to pay a $18.5 million fine.