To justify halting the launch of Telegram’s long-awaited $1.7 billion blockchain project, the Securities and Exchange Commission (SEC) relied heavily on communications obtained from investors.

In September, the regulator contacted U.S.-based investors, requesting information about what details were being shared by the company to support the TON token offering, according to Yakov Barinsky, CEO of the crypto investment firm HASH CIB, who consulted for some of the funds that invested in TON.

“I know that the SEC reached out to them asking how the deal was arranged, what information TON shared, what documents have been circulated and whether there was any omission of information,” Barinsky told CoinDesk, declining to name his clients.

Last Friday, when the SEC sued Telegram Group, Inc., demanding that it stop TON’s launch, its lawsuit included specific details the regulator gleaned from TON investors.

SEC lawsuit

Based on a close reading of the lawsuit, information gathered from the U.S.-based investors is included, revealing unknown details of the token offering, which had been conducted in secrecy, with investors specifically prohibited from talking publicly of their involvement.

The SEC cited a “pitch to one United States-based investor around January 2018.” To attract the investor, “Telegram spoke of its “A+ engineering team” and the “chance for 0x-50x returns on the investments.”

The SEC used the specifics shared by that investor to bolster its conclusion that the offering was breaking the law.

It said the investor purchased:

“$27.5 million worth of Grams in early 2018 for tokens that had no use and would have no use at the time of launch, demonstrating its intent to profit from the potential increase in value of Grams.”

Two other investors CoinDesk spoke to said they were not pitched “0x-50x returns,” suggesting that Telegram’s pitch varied, case by case, which could have been another red flag for the regulator.

The SEC halted the TON sale with an emergency restraining order against Telegram Group, Inc., and TON Issuer, the two issuers of Telegram’s tokens listed in the Regulation D filing with the SEC in February and March 2018.

The regulator said Telegram failed to register a securities issuance and “committed to flood the U.S. capital markets with billions of Grams by October 31, 2019” — the deadline for TON’s launch.

According to the restraining order, Telegram “has refused to accept service of an administrative subpoena by the Commission.”

Major venture funds, including Lightspeed Ventures, Sequoia Capital and Benchmark, had invested in the ambitious project that raised $1.7 billion from 171 investors worldwide last year.

According to the SEC’s lawsuit, out of 2.9 billion TON tokens, or “grams,” more than 1 billion went to 39 U.S. buyers who invested a combined $424.5 million, or almost 25 percent of the total raised.

TON: ‘Surprised and disappointed’

Telegram pushed a different version of the story, as it emailed investors shortly following the SEC’s motion. In a short email seen by CoinDesk, the company claimed the team had been trying to engage with the regulator, but to no avail:

“Telegram has attempted to engage with and solicit feedback from the SEC for the past 18 months regarding the TON blockchain. We were surprised and disappointed that the SEC chose to file the lawsuit under these circumstances, and we disagree with the SEC’s legal position.”

The notice went on to say Telegram is working on the ways to resolve the situation, “including but not limited to assessing whether to seek to delay the launch date.”

According to an investor who spoke to CoinDesk on condition of anonymity, a delay is likely.

“The fact that the SEC went active so close to the mainnet launch tells us that they estimated this project’s potential as high and potentially disruptive to them, considering the quality of TON’s tech and a very broad user base, which would allow Telegram to make gram’s circulation really wide-spread,” the investor told CoinDesk.

Barinsky, in turn, believes the moment gives the investors an opening: if the launch is delayed, Telegram will have to negotiate with the token buyers about it, and the investors can bargain for better deals.

TON was scheduled for launch on Oct. 31. Earlier this month, Telegram requested its investors generate their public keys using TON’s software and share them with Telegram to receive tokens.

Lightspeed and Sequoia did not respond to CoinDesk’s requests for comment. The SEC declined to comment.

UPDATE (OCTOBER 14, 23:40 UTC): This article has been updated to amend Yakov Barinsky’s title.

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