In a landmark digital currency ruling, a US District Judge in Manhattan has issued a preliminary injunction against Telegram. The Securities and Exchange Commission (SEC) initiated the lawsuit against Telegram in an attempt to bar the launch of the Company’s Open Network blockchain. The judge maintained the SEC’s claims that Telegram’s initiative to produce a new digital currency for its TON platform involved the sale of unregistered securities.
Emerging crypto markets under increased scrutiny
The debate over cryptocurrencies as securities continues. It’s true that crypto markets have soared in recent years, but the SEC is clearly stepping up regulatory efforts. Here are some things to be aware of regarding US regulation in the crypto market:
- SEC Chairman Jay Clayton stated that cryptocurrencies that provide initial coin offering (ICO) tokens could be classified as securities if they are offered through a fundraising process. This categorization would fall under SEC purview and regulations.
- The SEC distinguishes between cryptocurrencies that utilize ICO and Bitcoin, which is considered a commodity since it never used public funds.
- The SEC subpoenaed Coinbase, the largest crypto exchange in North America, for insider trading, and this led to more focused compliance by the company in the jurisdictions where it operates.
- It’s possible that SEC intervention could result in lower volatility in crypto markets, and that might attract larger-scale investors who would otherwise stay away.
- It’s also possible that SEC regulations could cripple cryptocurrency exchanges due to high compliance costs in a relatively cost-effective industry.
Protecting your interests
If your firm has serious concerns about SEC compliance, the importance of sound legal counsel and effective representation cannot be overstated. The attorneys at Ford O’Brien Landy LLP represent clients in New York and nationwide.
Source: Reuters, “SEC wins injunction against Telegram blockchain launch in key ICO case,” March 25, 2020