SEC lawsuit looming, "Telegram" further delays coin issuance, triggering $1.2 billion discount redemption clause

The privacy-focused messaging app Telegram has delayed its blockchain project TON for the second time this Wednesday, pushing the new launch date to April 2021. This delay has triggered the discounted redemption clause in the token sale agreement.

Second Delay Triggers Redemption Clause

According to CoinDesk's report, due to another delay in the Telegram project launch, investors will be able to redeem up to 72% of their investment under the terms of the token sale agreement. This clause was established before Telegram's coin issuance delay last October. Telegram raised $1.7 billion through a token sale in 2018, only to be targeted by the U.S. Securities and Exchange Commission (SEC) in 2019 for selling unregistered securities, leading to the forced suspension of the coin issuance plan.

Last year, the company lost in the initial trial with the U.S. Securities and Exchange Commission (SEC). In a second lawsuit on March 24 this year, a U.S. judge upheld the injunction from the initial trial, prohibiting Telegram from launching its blockchain project – TON or issuing tokens – Gram before a final ruling. However, for investors who wish to continue waiting for the coin issuance, besides redeeming their investment at a discount, they can also choose to lend the funds to Telegram as a loan. Telegram stated in a letter to investors:

"As a thank you for your confidence in TON, we offer you the following choices: by April 30, 2021, you will receive 110% of your original investment, 53% higher than the discounted termination amount."

Additionally, Telegram also mentioned in the letter that the company is still in discussions with relevant authorities. Investors still have the opportunity to receive "Gram or another potential cryptocurrency" under the same terms as the original purchase agreement, depending on the outcome of the negotiations.

If regulators continue to block the release of the TON blockchain, Telegram will resort to using equity to repay debts. Currently, the company is 100% owned by its founder and CEO Pavel Durov. Telegram stated that the recent monthly user growth of Telegram reached 400 million, and the equity value of Telegram will be several times the potential debt generated from the token sale.

Two fund managers interviewed by CoinDesk last week indicated that many investors, especially Silicon Valley venture capital funds, prefer to convert their token shares into Telegram's equity. For some venture capital firms, the tokens essentially emerged as an alternative to selling Telegram shares that they were previously unwilling to sell.

The Unstoppable TON

According to insiders at Telegram, the company seems to disregard the SEC's injunction and even plans to launch the project before the final judgment is made.

This week, new code has been added to the Telegram Open Network TON's GitHub repository, including new documentation on running validation nodes. At the same time, a website named ton.org ton.org has emerged, mirroring the information previously published on test.ton.org, containing documents and code for the TON testnet, while Telegram's technical partner TON Labs is also running a test network TON OS. Furthermore, there are unnamed sources who informed CoinDesk that several companies are planning to support TON and its tokens upon project launch.

However, Andrew Hinkes from Carlton Fields law firm expressed concerns that such actions may provoke further displeasure from U.S. courts. Initiating the network without permission is equivalent to violating the injunction, which could lead to a court appointing a receiver to take over the company. Andrew Hinkes stated:

"If the court determines (intentional or not) that the injunction has been violated, the court has discretion to take remedial action to force compliance or provide redress, including fines and imprisonment. Although this is difficult to enforce for a non-U.S. company."

Simultaneously, some TON investors and developers have privately established the TON Community Foundation, an informal organization that is preparing to launch its own TON fork chain in case Telegram faces difficulties. The organization launched its own test network in mid-April, becoming the third TON test network launched after Telegram itself and the official technical partner TON Labs.

During the legal battle with the SEC, Telegram continues to develop the TON blockchain, even releasing the code for TON blockchain nodes, technical papers on the TON consensus protocol, and a native wallet. Telegram has also organized several hackathons for blockchain developers, encouraging them to write wallets, games, and other applications for the TON blockchain.

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