What is a blockchain? It is a distributed ledger that tracks the current and historical state of accounts, transactions and/or events occurring on a network of computers, and is maintained by multiple parties, often referred to as validators and miners-who validate transactions occurring among users on the network. In January 2018, the Company began raising funds to finance its operations and the development of its own blockchain, the “Telegram Open Network” or “TON Blockchain.” 3 The TON Blockchain is intended to be a proprietary blockchain across which users will be able to trade and exchange Grams, the Company’s native digital token. Telegram is a private company primarily known for its product “Messenger,” an encrypted messaging application with over 300 million users that has gained popularity within the cryptocurrency community.

2 The Court’s decision may have a substantial effect on the token industry and the SEC’s enforcement efforts in this space-should the decision be upheld on appeal-because of the Court’s focus on “economic reality” in piercing through contractual representations and warranties in deciding whether a token sale should be regulated under the securities laws. (collectively, “Telegram” or the “Company”) had engaged in an unregistered offering of securities-in violation of the Securities Act of 1933 (the “Securities Act”)-by selling “Grams,” a digital token, to certain sophisticated investors. 1 In his decision, Judge Castel tackled an issue that lies at the forefront of the cryptocurrency regulatory space: when are digital assets subject to the securities laws and SEC regulation? In granting its motion for a preliminary injunction, Judge Castel found that the SEC had shown a substantial likelihood of success in proving that Telegram Group Inc.

Kevin Castel of the Southern District of New York issued a potentially groundbreaking decision in the matter of Securities and Exchange Commission v.

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