A U.S Court judge made a preliminary ruling in favor of the Securities Exchange Commission (SEC) injunction to stop Telegram from offering the GRAM tokens come April. While the ruling is not final, it raises doubts on whether Telegram will be able to offer the tokens to their investors amidst the upcoming April 30 deadline.

In a preliminary injunction ruling by Kevin Castel, U.S Southern District of New York judge, dated March 24th, Telegram will halt its planned GRAM token issuance after finding the action will violate the U.S Securities law.

In 2018, Telegram raised a public offering topping $1.7 billion in exchange for close to 3 billion GRAM tokens. However, the courts determined the company will be conducting an illegal securities offering if the tokens are disbursed under current conditions established by the “Howey Test”. The official report states,

“Considering the economic realities under the Howey test, in the context of that scheme, the resale of Grams into the secondary public market would be an integral part of the sale of securities without a required registration statement.”

Telegram argues that the offering entails two separate transactions; the first is the offers and sales on the “interest in GRAMs” which amounts to a security and the other will be the “delivery of the GRAM tokens to the initial purchasers once the TON blockchain launches.”

However, the court argues that reasonable purchasers would not be willing to pay $1.7 billion to acquire GRAM tokens for their utility on TON blockchain. It further states,

“Instead, Telegram developed a scheme to maximize the amount initial purchasers would be willing to pay Telegram by creating a structure to allow these purchasers to maximize the value they receive upon resale in the public markets.”

With these reasons, the court ruled that the distribution of GRAMs to the initial investors will amount to offering a security that would be unlawful given Telegram did not follow the due process outlined in the Securities Act. It reads,

“The Court also 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.”

This, however, does not mean the end of GRAM issuance, as Telegram can take the case to appellate judges. But the possibility of the injunction being rules into a permanent injunction rules-heavy at the moment and sets Telegram in a tight spot to return the investors’ money if no GRAMs are offered by April 30.

You can read the full 44 page document here:

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