The American Securities and Exchange Commission (SEC) suspected Pavel Durov's startup Telegram Open Network (TON) of illegally raising $ 1.7 billion when placing the Gram cryptocurrency. How and why an enterprising programmer who fled from Russia actually turned out to be a fraud in the eyes of the American financial authorities and why are yesterday's associates already denying him?
The life of Pavel Durov, the creator of the Telegram messenger, is divided into "before" and "after". Like many people who decided to leave Russia, not considering it necessary to properly organize their work here (or in violation of Russian law) and hoping that things would go much better abroad. At first it seemed so. In Russia, in 2018, Telegram was blacklisted by Roskomnadzor due to the refusal of the messenger team to work according to Russian laws and, when requested by the special services, to decrypt messages from users who use Telegram for terrorist purposes.
In the United States, Telegram has also been repeatedly suspected of aiding terrorism, in particular, with the help of the program, propaganda of the "Islamic State" (an organization whose activities is prohibited in Russia) and other extremist groups are still being conducted. However, Durov's business abroad went up the hill. Realizing that the Telegram team needs money to keep it working - paying salaries, paying for servers and spending for personal purposes - at first, Telegram wanted to place its securities on the exchange in order to raise funds.
However, Durov decided that the team did not need shareholders who would influence the decisions of his company. Therefore, a risky plan was invented for a relatively fair withdrawal of money from wealthy investors - the release of its own cryptocurrency Gram, which was also issued by the TON blockchain platform created by Durov. The method looked perfect: no shares, just virtual tokens promised to investors sometime later in exchange for a very real $ 1.7 billion right now. Investors believed, and Telegram received this money.
However, the success story was short-lived. Already in October 2019, the main US financial regulator SEC announced that Gram was a hoax, that transactions for the sale of non-existent tokens were illegal, and Durov himself could turn out to be a fraud. The SEC filed a lawsuit, and in January 2020, the commission's lawyers found Durov in Dubai and interrogated him.
Investor trap
The SEC case against Durov, which is scheduled to be heard in the New York District Court in February 2020, has an interesting backstory. In October 2019, when the US Securities and Exchange Commission filed a lawsuit against Telegram Group Inc., almost the entire American business press wrote about it.
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The US Securities and Exchange Commission has filed a lawsuit against Telegram Group Inc.
The Wall Street Journal wrote that the financial regulator "received a legal order" to stop Pavel Durov at all costs in a scam for the placement of the Gram cryptocurrency. At the same time in the United States, it became obvious to everyone that the $ 1.7 billion case, which Durov turned over, was one of the largest such transactions in history.
- said in the material of the newspaper.
SEC lawyers also spoke on its pages. For example, one of the directors of the rights protection division Stephanie Avakyan said that the US authorities do not want to allow a "flood" of digital tokens in the American financial system, since this cryptocurrency was sold illegally.
"The SEC has said that many of these fundraising deals violate US securities laws because the startups behind them do not provide investors with the required information to explain the company's financial side and business model," The Wall Street Journal wrote.
This means that the TON system was not transparent to investors. Durov took money from them, and in return did not talk about further plans or about the structure of the business. In a word, he did not explain to them what they invested in at all, except in the personal pocket of Durov himself. The entrepreneurs decided that since Telegram is so independent, then the asset it emitted should “shoot”, and Durov successfully “fed” them a fairy tale about how soon the Gram cryptocurrency, independent of the financial system, will become a profitable tool. The investor trap has slammed shut.
The entrepreneurs decided that since Telegram is so independent, the asset it issues should * shoot *. Photo: Anton Belitsky / Globallookpress.
Realizing this situation, the SEC reportedly decided to urgently stop the spread of this financial plague. On October 11, the Commission filed a lawsuit in court, and Telegram said in a response that its investors are rich people, venture capitalists and large hedge funds. But the SEC reiterated that Telegram's ICO (initial cryptocurrency placement) was illegal, and pointed to another danger posed by Gram:
“However, the SEC said in court on Friday (October 11) that Telegram's private ICO violated the law because the original investors would resell the tokens as soon as they were provided to them. "Their ultimate goal is to widely disseminate Gram in public markets," SEC lawyers said.
If the first danger is the deception of investors and the opacity of the TON business itself, the second is the danger of uncontrolled distribution of virtual money, then the third, according to the SEC, is “the possibility of using the Telegram messenger to hide information about who bought / sold Gram and who is the current investor.
The SEC's opinion submitted to the court allows us to say the following: Durov is suspected of creating an illegal pyramid within the American financial system, a shady business to attract criminal proceeds from anonymous investors, who can easily turn out to be sponsors of terrorism or owners of criminal money who want to “launder” it.
In the United States, Telegram has also been repeatedly suspected of aiding terrorism, in particular, with the help of the program, propaganda of the * Islamic State * (an organization whose activities is prohibited in Russia) and other extremist groups are still being conducted. Photo: Handout / Globallookpress.
Through Telegram in Gram, for example, it would be easy to pay for a contract murder, and no US Federal Reserve or a payment system connected to it would ever see the movement of this money, and it would even be impossible to take the customers themselves red-handed when transferring cash. In return, Durov would have received a comfortable life and further funding for his business.
Found and interrogated
On January 17, it became known that SEC lawyers had interrogated Pavel Durov, who is in Dubai. According to the regulator itself, about which RBC wrote, on January 7 and 8, lawyers interrogated Durov himself, and earlier, in December, the project staff associated with him. The interrogation was attended by the client's lawyer, the Scadden lawyer Alexander Drylevsky and the prosecution lawyer George Tenreiro. On December 15 and December 10, 2019, Vice President for Business Development Ilya Perekopsky and Telegram consultant Shyam Parekh were questioned in London, respectively.
It is reported that in the final transcript of the interrogations, those answers of Durov and his employees that related to the names of investors were deleted. Durov's associates also began to deny that they knew detailed schemes to raise $ 1.7 billion as a result of the ICO Gram.
Perekopsky, as follows from the transcript, said that the Telegram team did not receive guarantees from investors that they would not “spin” Gram the way they wanted, although Durov formally demanded that it be a “long-term investment”.
Parekh even stated that he was a participant in the project, and disowned all current ties with Pavel and Nikolai Durov. He stated that he did not know if he was entitled to Gram tokens as a participant in the project.
Durov, in Dubai, confirmed to the SEC lawyers that he created Telegram with money earned thanks to VKontakte and withdrawn from Russia, that Telegram's staff is now about 30 people, not counting third-party contractors, that the idea to create Gram belongs to him, and that the creation of TON he spent $ 218 million. The proceeds from the ICO Gram $ 1.7 billion, according to him, were to go to support Telegram and the TON blockchain platform.
As a result, the SEC recognized that the placement of Gram was illegal, and now through the courts will prevent the spread of this cryptocurrency. According to a court decision, the amount of $ 1.7 billion can be confiscated from Durov in favor of the state or returned to investors. There is no clarity on the rest of the sanctions against Durov, however, according to the SEC resolution, Telegram is obliged to disclose information about Gram by February 26, 2020.
Summarize. Before us is the real story of an enterprising marketer and programmer who "fought for what he ran into." It seemed to him that there would be no problems with the financial authorities of the United States, and the market freedoms of the West would be so liberal to him that he could place his cryptocurrency non-publicly and create a whole alternative payment system based on his own digital infrastructure. But it did not work out, and that is why the US authorities are already beginning to consider Durov a swindler, although so far he is being interrogated in the status of a witness.
If we consider that $ 1.7 billion will be confiscated, then there are also the consequences of Durov's activities, who hoped for the West, but, apparently, will be "robbed" there by the local authorities and lose a significant part of his capital. And this is an unambiguous signal to everyone who hopes that nothing will happen in the West with the money withdrawn from Russia.
As for Durov himself, it is unlikely that he will be able to simply hide from the US authorities. Obviously, he won't even try. With a high degree of probability, his accounts are dollar-denominated, and therefore, for failure to comply with SEC orders, they may be blocked, it will be extremely difficult to withdraw funds to another jurisdiction, although there his financial flows will be controlled by the Fed.
Finally, let us pay attention to the fact that none of Durov's associates interrogated by the SEC stood up for him. Parekh, who was in charge of the "holy of holies" of the ICO - contacts with investors - pretended not to know anything, and he had no connection with Durov. And this moment is also very revealing.
Author: Kucher Egor