
SEC Gets Win in Test of Authority to Regulate Cryptocurrency Sales - JumpCrisscross
https://www.wsj.com/articles/sec-gets-win-in-test-of-authority-to-regulate-cryptocurrency-sales-11585099706
======
Animats
This is pretty straightforward:

 _The Securities and Exchange Commission (“SEC”) seeks to enjoin Telegram
Group Inc. and TON Issuer Inc. (collectively “Telegram”) from engaging in a
plan to distribute “Grams,” a new cryptocurrency, in what it considers to be
an unregistered offering of securities. In early 2018, Telegram received $1.7
billion from 175 sophisticated entities and high net-worth individuals in
exchange for a promise to deliver 2.9 billion Grams. Telegram contends that
the agreements to sell the 2.9 billion Grams are lawful private placements of
securities covered by an exemption from the registration requirement. In
Telegram’s view, only the agreements with the individual purchasers are
securities. Currently, the Grams will not be delivered to these purchasers
until the launch of Telegram’s new blockchain, the Telegram Open Network
(“TON”)Blockchain. Telegram views the anticipated resales of Grams by the 175
purchasers into a secondary public market via the TON Blockchain as wholly-
unrelated transactions and argues they would not be the offering of
securities. The SEC sees things differently. The 175 initial purchasers are,
in its view, “underwriters” who, unless Telegram is enjoined from providing
them Grams, will soon engage in a distribution of Grams in the public market,
whose participants would have been deprived of the information that a
registration statement would reveal._

Telegram tried to split a security offering into two parts, neither of which,
by itself, had all the components of a security offering. This did not fool
anybody.

It's also a crap deal for buyers. If Telegram did an ordinary IPO, you'd get
stock, a share in the profits of the company, and voting rights. "Grams" give
you none of those things.

Attempts to frame a securities offering as something else are not new. The
original _Howey_ case, which defined the law in this area, involved a sale and
lease back arrangement of Florida orange groves, with the rights to harvest
the oranges being tradeable. Others have tried to pull this stunt with
warehouse receipts, chinchillas, minks, diamonds, bullion, pay phones, and
condos. The ICO crowd is not as original as it thinks it is.

~~~
raspartame
> It's also a crap deal for buyers. If Telegram did an ordinary IPO, you'd get
> stock, a share in the profits of the company, and voting rights. "Grams"
> give you none of those things.

This is the part I never understood. Even if you could suspend disbelief over
the regulatory risk of this whole thing, it still seemed like a fundamentally
bad offering.

------
comex
As usual, the article fails to link to the actual court ruling, even though
they're usually perfectly readable without any preexisting legal knowledge.
Here's a copy:

[https://drop.qoid.us/453109383-TG-
Order.pdf](https://drop.qoid.us/453109383-TG-Order.pdf)

------
risho
this was obviously going to happen. how telegram could have imagined this
going any other way is beyond me. i'm not even a lawyer and i could have told
them this.

~~~
KKKKkkkk1
Well, maybe they should have hired you as their counsel then.

 _Unlike many of the SEC’s targets, Telegram had the advice of a Wall Street
law firm before raising funds, while the investors in its digital-coin sale
included the Silicon Valley venture-capital firm Kleiner Perkins Caufield &
Byers, as well as executives from Fortress Investment Group and SoftBank Group
Corp._

~~~
LunaSea
And we all know how great SoftBank is with due diligence.

------
seibelj
The entire crypto industry is offshore now. Coinbase is a shadow of itself,
doing 1/20 of Binance on a good day. All US players are buried under mountains
of legal fees while the offshore players continue to gain market share. The
only rational move if you have a physical entity is to 1) Ban US customers and
2) incorporate in Cayman, Seychelles, etc. Coinbase talks about “maybe
launching futures at 10x leverage” but that takes them millions in legal fees
and years of effort to allow this. Meanwhile Binance and FTX have 150x
leverage and launching crypto-derivatives on oil, DOW, FTSE, forex, etc. etc.
etc. It’s game over for Coinbase, Gemini, all US guys. I don’t blame the US
given their heavy regulation focus on financial markets, it’s what regulators
in the US do, but it’s simply untenable for crypto industry given it’s a
global market and the only restrictions to access are illusions mandated by
governments.

Telegram made a mistake by taking any US money whatsoever. If they avoided
that they would have had much easier time.

Blockchain doesn’t care about borders, it’s just math. US is playing a losing
game but it’s fine - the software doesn’t care.

~~~
maps
The key feature of coinbase and gemini is of course that they are following
all the regs and are the most trustworthy exchanges out there. The people who
want 150x leverage on a shady exchange are not the same customers. I would
fathom that they are not even in the 'crypto' space as the history of shady
exchanges going belly up (btc-e, cryptsy, bitfinex?) should keep anyone with a
half descent memory up at night.

~~~
seibelj
The market is proving that the demand for highly-regulated exchanges is far
less than the offshore light-regulation ones. The volumes and liquidity speak
for themselves.

~~~
lend000
This is not true; reported volumes are fraudulent or misleading for some of
the exchanges you are describing. Look at the entropy of Binance daily volume
compared to legitimate exchanges like Coinbase, Kraken, Gemini, etc. They used
to be faking it even worse. Average real volume on legitimate exchanges has
actually grown since the 2017 bubble.

And comparing real volume against the volume of synthetic instruments like
Bitmex's perpetual swap is comparing apples to oranges. There is no fiat
currency on those exchanges. There is literally zero real liquidity, simply
the mechanics of liquidity that can only be cashed out on a reputable
exchange.

~~~
seibelj2
For whatever reason my original account is rate limited. OTC desks execute
trades on Binance / Bitfinex and hedge on Bitmex / Binance Futures. If Binance
quotes you [XXX] BTC at $1 mil it will go through 100% of the time. You are
out of your mind if you think they are faking vol. Perpetual futures charge
the same bips if you go 100x, if you have 0.2% fee the exchange takes $2 at 1x
or $200 at 100x, doesn't change the fees. Leverage inflates volumes but
absolutely increases their fees (revenue), both from bips but also
maintenance. You're on another planet if you think Gemini and Coinbase have
anywhere close the revenue of Binance and Bitfinex. Sorry man.

~~~
lend000
> If Binance quotes you [XXX] BTC at $1 mil it will go through 100% of the
> time.

1mm would even go through on Gemini. Even for crypto, that's tiny. You bring
up an important point: have you ever noticed the correlation between fees and
volume? Bitmex is the best example; they literally pay the maker of each trade
and the taker pays an order of magnitude less than KYC exchanges.

Bitmex and Binance are doing well, no doubt, and Bitmex likely has higher
revenue than Coinbase's exchange and Kraken combined, in part due to their
built in market maker and de-leveraging mechanism. However, the numbers you
are looking at will throw you off by an order of magnitude from true values
for the argument you are trying to make. The big legitimate exchanges are
doing quite well considering the market, although the volume is seemingly
consolidating into Coinbase and Kraken.

If you know how to code, check out the entropies. Bitmex volume is real, but
synthetic. Binance volume... maybe 40% real, being generous. There was a time
when it was more than 90% fake, like most of the exchanges on CoinMarketCap.
They literally faked it until they made it. No need to get feisty about it,
just fact checking.

------
merricksb
[http://archive.md/a0a1D](http://archive.md/a0a1D)

