Telegram, best known for their messaging software, wanted to start a massive international private currency — they would call it Grams, and make it available in the Telegram Messenger software, used by hundreds of millions of people around the world! And sell Grams on cryptocurrency exchanges.

Telegram sold $1.7 billion worth of Grams — and that was $1.7 billion in actual money, not cryptos — to big-ticket investors with more money than sense, who wanted to get into crypto.

Now, the bit about Grams being right there in software used by milions? Yeah, about that …

The TON blockchain was technically ambitious — and weirdly incoherent. A lot of the ideas had actually been rejected from Ethereum five years previously.

But you can say any nonsense in a white paper, and it fundamentally doesn’t matter — you don’t need much of a system just to run a private currency.

And so the actual sales agreement doesn’t promise much of a network, and certainly not all the bafflegab in the TON white papers — it just promises that there will be a network of some sort, the tokens will exist on it, and the tokens will be available in Messenger. [Purchase Agreement for Grams, PDF]

The public promotional video trailer also promises Grams in Messenger. [YouTube, video]

The sales contract says (section 5.2):

To the extent permitted by applicable law, Governmental Authorities, and technology and mobile platforms, the Parent shall use its reasonable endeavours to facilitate the use of Tokens as the principal currency used on Telegram Messenger by building TON Wallets into Telegram Messenger.

Telegram now wants to break this promise. They’ve posted an announcement that the TON Wallet will be standalone — though “Telegram may integrate the TON Wallet application with the Telegram Messenger service in the future to the extent permitted under applicable laws and governmental authorities.” [announcement]

Telegram’s problem is that they’re getting sued by the SEC — because, even as the new announcement says “Grams won’t help you get rich,” the promise to the original investors was precisely that they could buy billions of Grams cheap, and dump them on retail investors via crypto exchanges, at a massive markup.

The SEC is upset at the whole scheme — a private offering of securities to accredited investors is fine, but the SEC’s case is that you can’t then dump the securities on the retail public without the full paperwork involved in offering a security to the retail public. [SEC complaint, PDF]

The original sales agreement already had a get-out clause:

9. FORCE MAJEURE … (e) action by any Governmental Authority

The SEC action would certainly count for that — technically, Telegram could have said “sorry lol” and kept the money.

But, these are big-ticket investors, American and Russian — and they may have a robust attitude to perceived shenanigans. I’m presuming Telegram is in extensive ongoing communication with the investors — and the investors will be happy if they can at least dump the tokens eventually.

The key message from the SEC is that “SAFT” ICO contracts were always nonsense — you can’t transmute a security into a non-security by using magic words, and especially not when the investment opportunity in question was a detailed plan to dump securities on retail without doing things properly.

I’d actually expected that Telegram’s big problem with Grams was going to be FinCEN and money laundering rules — I didn’t expect the SEC action at all. Though the SEC action is obvious in retrospect.

By the way, the latest news just in — the SEC want to know all of what Telegram have spent the money they got for Grams on. Telegram is resisting furiously. The judge wants Telegram to propose what they can release to the SEC, without violating foreign bank privacy laws. There’s a lot of document discovery to get through before the case is heard, in February. [SEC v. Telegram docket, SEC motion — PDF, Telegram response — PDF, judge’s order — PDF]