The litigation is coming to the finishing line: the court is likely to review the case at an earlier occasion and the parties have disclosed their positions. The first hearing is due within a month. What are the prospects of Telegram Inc.? What is the court’s likely verdict?
Rapid growth and a bid for independence will surely draw the attention of the Big Brother at some point in future. The main questions are how far ahead Telegram is building plans for, what risks are foreseeable now and what hedging instruments can be used. Given the fact that Telegram CEO Pavel Durov does not intend to be limited solely to a messenger but to building a virtual state it is impossible to avoid new battles against the existing system. The trial against the SEC can be considered the first sign.
Let’s review the most probable outcomes of the lawsuit without diving too deep into legal details. (Ranked from the most probable to the least probable.)
1. The court rules in favor of the regulator by charging Telegram with breaking rules
Support. The court indicates that this initial coin offering and the way Telegram executives act mimic the features of other securities. It might be called and filed differently and the product itself is built around innovations that are not typical for ordinary offerings, however they are stocks in terms of their basic qualities (buying incentives, appropriate stock market, volatility and the right to cash out). Issues at Libra also support this position.
Consequences. This decision could imply a ban on the release of Gram, at least, in the US market. Penalties are not to be ruled out as well. Durov will not go for Gram to be regarded as securities. Instead, he might consider developing TON without accessing American jurisdiction, or reformatting, i.e. relaunching as a token with minimum resemblance of stocks. Unless there are other more favorable alternatives, Telegram will be forced to sort out these issues with their investors.
2. The court finds violations but does not block ICO
Support. As in the previous clause, the court acknowledges the offering as securities, but accepts the claims of Telegram to be special and worthy. For example, the lack of direct legislative supervision, the uncertainty of judicial practice, notifications to the SEC, the technical features of TON, and specifics of the world today.
Consequences. Although the case will be ruled in favor of the regulator, there still be a loophole to make changes and complete the ICO. It is the boundaries of this leeway that could be an obstacle since they might range from insignificant corrections to the full paradigm shift. This verdict could open a way for other competitors. Additionally, this could be a bargain for the FBR in exchange for a backdoor, but we hope that Durov’s position is sturdy enough.
3. Telegram wins or a settlement
Support. The court confirms the SEC’s claims are valid and the need to have an oversight over ICOs. At the same time, given the position of Telegram on the second clause, the court’s technical experts indicate that the similarity of some features does not make securities and cryptocurrencies on par. Hence, Telegram Inc. have correctly filed their paperwork and have not violated the Securities Act of 1933.
A settlement may be struck including a significant payment or an execution of certain actions (for instance, to perform the legislative procedures inherent to the issuance of shares). In any case, this would indicate a victory.
Consequences. The demand for Gram grows rapidly, and cryptocurrencies once again become trending in the news. Durov is a genius, Zuckerberg forces the release of Libra.
Whatever decision the court makes, it can be appealed, under certain conditions — all the way to the US Supreme Court. If so, then a final act will take place there which will become a historical event.
