I won’t do a full writeup this evening — it’s late on the first day of Covid-19 lockdown in the UK, and I’ve had a remarkably busy time of things — but the judgement in SEC v. Telegram just dropped. [Opinion and order, PDF; case docket]

Summary: The SEC prevails:

The Court finds that the SEC has shown a substantial likelihood of success in proving that the contracts and understandings at issue, including the sale of 2.9 billion Grams to 175 purchasers in exchange for $1.7 billion, are part of a larger scheme to distribute those Grams into a secondary public market, which would be supported by Telegram’s ongoing efforts. Considering the economic realities under the Howey test, the Court finds that, 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. … An injunction, prohibiting the delivery of Grams to the Initial Purchasers and thereby preventing the culmination of this ongoing violation, is appropriate and will be granted. CONCLUSION Plaintiff’s motion for a preliminary injunction, (Doc. 3), is GRANTED

Document 3 is the SEC’s initial action of 11 October 2019 — the “EMERGENCY MOTION for Temporary Restraining Order, Order to Show Cause, and Granting Other Relief.” Telegram or its agents — and that may include those early investors — shall not issue Grams, or cause them to be issued. [Emergency Motion, PDF]

If you’re an embittered salty nocoiner, Castel’s judgement is 44 pages of Buttcoin schadenfreude. Judge Castel shows his working — and why Telegram will absolutely lose if they push this one in his court.

So, Telegram could appeal the injuction. They could take this to trial, even though Judge Castel has indicated in detail why they will lose — possibly on the expectation they could prevail on appeal. They could give up and give all the money back to the investors, as the SEC wants — though they’ve already spent quite a bit of it.

But I strongly suspect that about wraps it up for the Telegram ICO.

I don’t know what the effects on Telegram will be. Paying back all the money means paying back more than they have on hand. Telegram’s unlikely to shut down tomorrow, but it won’t be great for them — the network’s been funded entirely out of Pavel Durov’s pocket so far. He’s rich from founding VKontakte, but not that rich.

Some foolish Internet commenters keep suggesting that Telegram could cock a snook at the SEC and the US in general, take all their business out of there, and issue the Grams in non-US territories. This is unlikely to be viable if Telegram want to do anything that touches the US ever again — and they would likely get a substantial fine adjudged against them that was enforceable in most of the developed world. So I think they won’t do that.

Update: Stephen Palley on the ruling. “This is the first major federal court ruling to analyze this issue and if other courts follow suit it may create significant roadblocks for other SAFT issuers.”