Messaging startup Telegram Group Inc. today said it has abandoned its efforts to build the Telegram Open Network and associated Gram cryptocurrency in the face of opposition from the U.S. Securities and Exchange Commission.

The decision by Telegram to abandon its plan did not come cheap. The company had raised $1.7 billion in presales from some 200 private investors and canceled plans for an initial coin offering. The money was raised to build what Telegram described as a “third-generation” blockchain named TON that would use the Gram token as its native cryptocurrency for transactions.

Investors included Russian billionaire Roman Abramovich, Sergei Solonin, founder of payment service provider Qiwi, and David Yakobashvili, founder of Wimm-Bill-Dann foods. Other investors included blue-chip Silicon Valley venture capital firms such as Benchmark Capital, Sequoia Capital and Lightspeed Venture Partners.

The SEC claimed that the offering was an unregistered security and obtained a temporary restraining order against the TON blockchain sale in October 2019. The SEC claimed that “Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.” In addition, the SEC also claimed that Telegram failed to provide investors with information regarding business operations, financial conditions, risk factors and management that securities laws require.

Telegram lost its appeal against the SEC injunction in March, with a U.S. District Court judge ruling that the Gram sale was in breach of the Securities Act. The judge also found that the Gram TON blockchain offering reached the levels of the Howey test, created by the U.S. Supreme Court in 1946 to determine whether certain transactions qualify as investment contracts and hence are subject to securities law.

The company has now abandoned its TON blockchain development plans, but it went out swinging.

“Unfortunately, a U.S. court stopped TON from happening. How? Imagine that several people put their money together to build a gold mine – and to later split the gold that comes out of it. Then a judge comes and tells the mine builders: ‘Many people invested in the gold mine because they were looking for profits. And they didn’t want that gold for themselves, they wanted to sell it to other people. Because of this, you are not allowed to give them the gold,'”Telegram founded Pavel Durov wrote in a blog post.

“If this doesn’t make sense to you, you are not alone – but this is exactly what happened with TON (the mine), its investors, and Grams (the gold),” Durov added. “A judge used this reasoning to rule that people should not be allowed to buy or sell Grams like they can buy or sell bitcoins.”

Image: Telegram