Curriculum·G801 Securities Law for Tokenized Assets·about 33 min

Is the token a security

By the end of this lesson you can

→Explain that the securities question is decided by the economic substance of the offering, not its framing
→Describe how Telegram's 1.7 billion dollar token raise was halted as an unregistered securities offering
→Reason that calling a token a technology does not change whether its sale was a securities offering
→Treat the securities determination as the first gate every tokenized asset must pass

Graduate · enrolled learners

This lesson opens with Telegram and the TON blockchain, 2020.

What happened: Telegram raised about 1.7 billion dollars from 175 purchasers by selling rights to a token, Gram, that it planned to launch on its TON blockchain. It treated those private sales as securities offerings exempt from registration under Rule 506(c) of Regulation D, and it maintained that the Grams themselves, once delivered at launch, would be a currency, a medium of exchange, and not investment products. The US Securities and Exchange Commission disagreed. It sued in October 2019, and in March 2020 a federal court granted a preliminary injunction barring delivery of the Grams, finding the SEC had shown a substantial likelihood of proving that the private sales and the expected resale of the Grams into the public market were a single scheme, and that the scheme as a whole was an unregistered securities offering. The court looked at the substance: purchasers had paid expecting the Grams to rise in value through Telegram's efforts to develop, launch and support the network, which is an investment contract whatever the token is called. Telegram ended its involvement with TON in May 2020, then settled, returning more than 1.2 billion dollars to investors and paying an 18.5 million dollar penalty. The token was a piece of technology, but the offering was a securities offering, and describing the Grams as a currency did not change what the court saw when it examined the economic reality.
The decision point: Whether a token is a security is decided by the economic substance of how it was offered and sold, not by what it is called or what technology it runs on, and for a tokenized asset this is the first gate: if the answer is yes, the full weight of securities law applies to everything that follows. The test is the same one from earlier in the curriculum, whether there was an investment of money in a common enterprise with a reasonable expectation of profit from the efforts of others, and it reads the reality of the transaction. Telegram is the case that shows the stakes at scale: a 1.7 billion dollar raise whose token was described as a currency and not an investment product was halted as a likely unregistered securities offering because purchasers had put in money expecting Telegram's work to make the token valuable, which is an investment contract whatever the token is. So the decision anyone tokenizing an asset makes is to answer the securities question honestly and first, from the substance of the offering rather than the framing, because a token that is a security carries registration, disclosure and the entire securities regime, and a structure built on the hope that calling it a currency or a technology avoids that is a structure that can be halted, unwound and penalized, as Telegram's 1.7 billion dollar one was.
Recorded loss: $18,500,000

What you will be able to answer

→Why was Telegram's Gram distribution halted (2020)?
→What decides whether a token is a security?
→Why is the securities question the first gate for a tokenized asset?
→Does calling a raise a technology sale change whether it is a securities offering?

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

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Sources and review

Confidence high·Volatility high·Reviewed 2026-09-16·Owner unassigned

Contested

The recorded 18.5 million dollar figure is the civil penalty; Telegram also returned more than 1.2 billion dollars to investors, and the raise itself was about 1.7 billion. The lesson uses the substance-over-label holding, not a single loss figure.

The Telegram ruling was a district-court preliminary injunction (SEC v. Telegram Group Inc., S.D.N.Y., Judge Castel, 24 March 2020), not a final judgment on the merits: the court found the SEC had shown a substantial likelihood of success, Telegram appealed to the Second Circuit and then settled in June 2020. The court also located the security in the entire scheme, the private sales together with the expected resale into the public market, and not in the Gram token or the purchase agreements standing alone. Telegram had conceded the private sales were securities offerings, claiming the Rule 506(c) exemption; what it disputed was the delivery of Grams at launch. How the securities analysis applies to a given tokenized asset is fact-specific and continues to develop, which is exactly why the securities question is answered from substance case by case rather than by a blanket rule.

Telegram raised its 1.7 billion dollars from 175 purchasers by the court's count; the SEC's releases say 171 initial purchasers. The lesson does not rely on the purchaser count.

The lesson's statement of the test, an investment of money in a common enterprise with a reasonable expectation of profit from the efforts of others, is the usual modern summary. Howey (328 U.S. 293, 1946) said profits 'solely from the efforts of the promoter or a third party'; United Housing Foundation v. Forman (421 U.S. 837, 1975) restated it as a reasonable expectation of profits from the entrepreneurial or managerial efforts of others, and held that form is disregarded for substance and the name given to an instrument is not dispositive.

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