Digital Chamber of Commerce Weighs In on Telegram Legal Battle With SEC

The Chamber of Digital Commerce has filed an amicus brief in the ongoing court case between encrypted messenger service Telegram and the United States Securities Exchange Commission (SEC).

Filed on Jan. 21, the document was authored by Lilya Tessler, a partner and the New York head of Sidley Austin LLP, counsel to the Chamber. 

In the amicus brief — a legal document that allows a non-litigant to submit its expertise or opinion in a case — the Chamber makes a number of arguments regarding how the U.S. District Court for the Southern District of New York should consider digital assets. 

The Chamber is a non-profit trade association established in 2014 which aims to promote the adoption of digital assets and blockchain-based technology. As part of its mission, the Chamber established major blockchain and crypto-related advocacy groups including the Blockchain Alliance and the Token Alliance.

Chamber urges for clarity regarding investment contracts 

Given its supportive stance on blockchain technology, the Chamber emphasized that it is not trying to prove whether Telegram’s $1.7 billion Gram token sale was a securities transaction. Instead, the trade association aims to ensure that there is enough clarity around regulations applying to digital assets:

“Although the Chamber does not have a view on whether the offer and sale of Grams is a securities transaction, the Chamber has an interest in ensuring that the legal framework applied to digital assets underlying an investment contract is clear and consistent.”

As such, the Chamber has urged the Court to distinguish the term of digital asset, which is the subject of an investment contract, from the securities transaction associated with it. The association stated that this requires two separate analyses including whether there is an investment contract that is offered in a securities transaction and whether the subject of the investment contract is a commodity that can be sold in a traditional commercial transaction.

The question of whether a token sale constitutes an investment contract — and therefore a securities offering — has been at the heart of the SEC’s case against Telegram. Earlier this month, Telegram stated that Gram does not constitute an investment product and that investors should not expect profits for buying and holding the token. 

The Chamber says that not all digital assets should be regulated as securities

In the document, the Chamber also states that not all digital assets should be regulated as securities simply because they are based on blockchain technology:

“We further respectfully request that the Court affirm that a digital asset is not a security solely by virtue of being in digital form or recorded in a blockchain database.”

Additionally, it noted that, while digital asset investors should be afforded full protections of securities laws, disclosures required by the securities laws “serve little purpose with respect to commercial transactions in the digital assets themselves.”

Moreover, the brief also stresses that not all digital asset-related transactions require the protection of securities laws, noting that there are a number of related regulators other than the SEC. The Chamber further requested the Court to consider multiple regulatory regimes while making its decision in SEC vs Telegram case:

“Depending on the relevant activity, other regulatory regimes exist to protect purchasers or counterparties. For example, fraud and market manipulation in certain digital asset transactions (depending on the facts and circumstances) is subject to CFTC enforcement authority. Other activities involving digital assets may also be subject to the Bank Secrecy Act, federal and state consumer protection laws, state money transmitter licensing laws, and state laws specific to virtual currency transactions, such as New York’s Virtual Currency Business Activity law.”

As Cointelegrpah reported, Telegram founder and CEO Pavel Durov recently gave an 18-hour long videotaped deposition for the court in Dubai. Throughout the deposition, SEC official Jorge Tenreiro questioned Durov extensively on the company’s expenses and funding used to set up the firm.