The final act in the saga between Telegram Group Inc. (“Telegram”) and the SEC was the June 26, 2020 court approval of the SEC’s settlement with Telegram, in which Telegram agreed to pay a civil penalty of $18.5 million and disgorge $1.224 billion to investors related to what the SEC claimed was an illegal unregistered public offering of securities.  This followed the court granting the SEC’s requested temporary restraining order in October 2019 (on an emergency basis) to prevent Telegram’s issuance of $1.7 billion in blockchain-based instruments (“digital assets”) known as “Grams.”

The abrupt termination of Telegram’s offering is particularly notable for the SEC’s treatment of the Simple Agreement for Future Tokens (“SAFT”) offering framework, which its designers thought was  a creative solution to conduct “initial coin offerings” (“ICOs”) without triggering U.S. securities registration requirements. The two-step transaction contemplated by SAFTs was envisioned as enabling startups to secure an initial infusion of cash by selling in a private placement to accredited investors the right to receive digital assets when they were issued in the future. The digital asset community has been watching the Telegram case, hoping SAFTs would be spared the enforcement scrutiny that the SEC gave to ICOs.  However, recent SEC enforcement activity, including the order in SEC v. Telegram, suggests the SEC is viewing SAFTs as another breed of ICO, and successfully persuading federal courts to join that viewpoint.

Designers of the SAFT framework touted it as a potential avenue to issue digital assets without requiring registration