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The US Securities and Exchange Commission (SEC) has filed a court order seeking to compel Telegram to explain how funds generated from an Initial Coin Offering (ICO) have been spent.

In a court filing on Thursday, as reported by Finance Magnates, SEC says that the request for information is key as part of an ongoing complaint in relation to the ICO, which raised over $1.7 billion from investors.

According to SEC, the encrypted messaging service app provider has so far refused to provide any financial information, including how the money has been spent in the past two years.

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"Plaintiff respectfully moves to compel Defendants to answer questions and provide documents regarding the amounts, sources, and use of funds raised from investors in connection with the unregistered sale of securities at issue in this case," the filing reads.

The US financial watchdog alleges that the ICO, launched in January 2018 for the development of the Telegram Open Network (TON) project, was an unregistered token offering. ICOs are often legitimate means for blockchain-based projects to raise capital from investors, but as these token sales became popular, so did illegal sales and exit scams.

In October, SEC obtained a temporary restraining order against Telegram after claiming Telegram's Gram token sale was not registered and therefore violated the US Securities Act. In total, approximately 2.9 billion Grams were sold to investors worldwide.

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Regulators claim that Telegram not only failed to register, but also did not transparently provide information to investors regarding "business operations, financial condition, risk factors, and management that securities laws require."

Telegram denies the tokens are securities.

In the recent filing, SEC says that the ICO expenditure records are "highly relevant" to the court case "including how much money Telegram has spent, and in what manner, in developing the TON Blockchain, the Telegram Messenger application to be integrated with the TON Blockchain, and related applications."

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TON was due to go live in October 2019, but SEC's complaint moved Telegram to delay the date to April 2020.

SEC is seeking permanent injunctions against Telegram, financial disgorgement, and civil penalties.

ZDNet has reached out to Telegram and will update when we hear back.

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