The Blockchain Association, a major United States-based trade association in the crypto sphere, has filed a new brief in support of Telegram amid the firm’s continuing legal battle with the Securities and Exchange Commision (SEC).
The amicus brief and the SEC’s lack of clarity
The April 3 brief takes the SEC to task for backtracking on its own guidance for legally distributing digital assets.
Referring to the inconsistency that issuers of digital assets must cope with when dealing with the SEC, the brief says that “No settled precedent or agency rulemaking addressed whether and when digital assets amounted to securities.”
As to Telegram’s particular conundrum, the brief reads: “the enforcement posture in this case, and the district court’s position, run the opposite direction of the Commission’s prior statements.”
The brief emphasizes Telegram’s efforts to work to the SEC’s expectations
When the SEC initially sought an emergency action against Telegram, the firm argued that it had filed for an exemption under Regulation D. Reg. D allows firms to sell shares to investors that meet certain criteria without having to report to the full extent required of publicly traded firms.
The brief argues that Telegram was clearly trying to operate within the SEC’s expectations, including based on the SAFT (Simple Agreement for Future Tokens) framework. SAFT aims to allow tokens to be sold via investment contracts that are securities, with the acknowledgment that the tokens themselves “need not be securities themselves.” In Telegram’s case, this is the SEC’s objection:
“The Commission’s statements have expressly encouraged this [SAFT] model and its reliance on Regulation D private placements. Innovators and developers unsurprisingly relied on these statements, only to be surprised with enforcement actions.”
For Telegram, this surprise stung. The SEC ordered its initial halt on GRAM token distribution weeks before it was scheduled and after the company had raised over $1.7 billion from their sale. The brief cites this act as unfair:
“To ignore the Commission’s prior statements and permit it enjoin shut down the delivery of Grams — at great cost to Telegram, the investors, and many other projects — constitutes just the sort of ‘unfair surprise’ that an agency should not be permitted to spring on the public.”
An amicus brief — coming from the phrase “amicus curiae,” Latin for a friend of the court — is a means for an entity outside of a legal case to weigh in on the subject. The Blockchain Association is not itself party to the case.
Where SEC v. Telegram stands currently
The Blockchain Association’s new brief comes amid a series of decisions against Telegram — most recently, the judge in the case denying the firm’s ability to distribute its TON tokens outside of the U.S.
Some within the SEC are looking to change these frameworks more formally. In February, Commissioner Hester Peirce proposed a new framework that lays out a safe harbor for tokens to launch in a centralized manner as long as they demonstrate decentralization within 3 years. The safe harbor would keep the SEC from pursuing tokens that successfully become “non-securities” in that timeframe.