The US crypto industry has been facing regulatory hurdles and immense pressure from financial regulators these few months, with Telegram losing against the US Securities and Exchange Commission (SEC) in a lawsuit regarding Telegram’s unlawful sale of securities through its 2018 ICO token sale. Telegram subsequently submitted an appeal to clarify the injunction the district courts placed on the company, hoping it would be able to distribute their Gram tokens to non-US investors, but was met with rejection again. In light of the current developments in the case, the US Blockchain Association filed a brief on April 3 in support for Telegram.
Five arguments are outlined in the document. The trade association opens the document with the importance of digital assets in the growth of the US economy, and contends that the digital assets industry is rapidly evolving at a pace that current outdated laws cannot match. The SEC’s definition of security tokens are also questioned in the document, while the SEC benchmark for securities using the Howey test is inaccurate:
The question here is how to apply that WWII-era precedent to a rapidly developing medium of digital exchange. The variable and fact-specific nature of the Howey analysis means some digital assets reflect common investments in a third party’s managerial efforts to turn a profit while others do not. Applying Howey to novel and varied blockchain projects is not a uniform determination—and the Blockchain Association urges this Court to recognize that variety and nuance in its review of this case.
It is also crucial to note that there is no precedent where the exact shift of digital assets to that of securities has been identified, and the SEC itself has provided vague parameters on this issue as well.
“This avant-garde approach has regrettably left policymaking to novel enforcement actions like this one, prejudicing firms trying to comply with the law and depriving the public of any notice or comment. Instead, market participants have been forced to hunt for regulatory clues among the Commission’s limited and opaque statements, speeches, no action letters, closed-door meetings, and settlements,” the association stated.
Last week, 11 class actions were filed against 42 crypto companies including Binance, KuCoin and BitMex by New York based law firm Roche Freedman in cases similar to that of Telegram’s. Unfortunately, it seems that with the success of the SEC’s accusations against Telegram, more past token sales may come under regulatory scrutiny now that a set precedent is available for reference.