telegram ico

The company behind wildly-popular encrypted messaging app Telegram has scrapped plans to open its initial coin offering (ICO) to the public, says an anonymous source close to the matter.

According to the Wall Street Journal, Telegram — which is developing a blockchain ecosystem called the Telegram Open Network (TON) — has determined that it does not want to enter the murky regulatory waters currently governing the ICO industry.

That’s not to say the company is hard up for cash.

As BlockExplorer reported, the chat platform already reported to the Securities and Exchange Commission (SEC) that it had raised $1.7 billion from fewer than 200 investors during two private ICO presales, which the firm conducted during the first three months of the year.

Those funds will purportedly be used to develop TON, which the company has privately described as a “third-generation blockchain” capable of processing millions of transactions per second. However, skeptics have wondered aloud whether that money will instead be used to fund Telegram’s general operations, as the app does not currently generate revenue.

One anonymous source cited in the report connected Telegram’s decision to shelve the public ICO to the SEC’s increasing oversight of the burgeoning ICO space, which has seen startups collectively raise billions of dollars over the past calendar year — and fraudsters make off with a noticeable percentage of it.

Since the presale excluded retail investors, Telegram was able to claim an exemption from traditional securities registration requirements.

However, opening the offering to the public would raise a number of thorny regulatory issues, and many observers believe the SEC is preparing to bring down the hammer on noncompliant ICO operators.

If a company as well-known as Telegram conducted a conventional ICO, it would present the SEC with a high-profile target if it desired to make an example intended to frighten other market participants into compliance.

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hong kong

Hong Kong securities regulators are ramping up the rhetoric on initial coin offerings (ICOs).

Speaking last week at an investment industry event, Julia Leung, deputy chief executive officer of Hong Kong’s Securities and Futures Commission (SFC) warned that many ICOs violate securities laws.

“While we acknowledge that innovative technologies such as blockchain have the potential to improve efficiency and financial inclusion, that does not entitle anyone to conduct fundraising from the public in violation of securities law,” she said, adding that most ordinary investors are not equipped to evaluate these investments.

That in itself was not out of the ordinary. Most countries loop this nascent fundraising model under current their current securities frameworks and expect startups issuing security tokens to operate accordingly.

However, Leung then went a step further, stating that many ICOs are dubious while others are outright frauds.

“Further complicating matters, many of these fundraisings are dubious, if not downright frauds,” she said. “The issuers escape the scrutiny of the police or securities regulators because of their cross-border nature and the way the crypto assets are structured to fall outside any regulator’s perimeter.”

This is not the first time the SFC has sounded the warning bell on ICOs, and it has matched those words with action on several occasions.

Last month, the SFC shut down the ICO for cryptocurrency startup Black Cell Technology, alleging that it had engaged in “unlicensed regulatory activity” and was not registered with the government.

Previously, the SFC had sent letters to seven cryptocurrency exchanges warning them to delist tokens the agency considers to be securities.

Recently, three Hong Kong-based exchanges — Binance, OKEx, and Bitfinex — have announced plans to move their operations overseas, to Malta in the first two cases and Switzerland in the third.

While they did not explicitly cite Hong Kong’s regulatory environment as a reason for the move, all have lauded the cryptocurrency-friendly climates in their new locations. Switzerland’s canton of Zug has been nicknamed “Crypto Valley” for the large number of cryptocurrency startups and ICOs that have relocated there, while Malta is seeking to establish itself as Europe’s “Blockchain Island.”

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