b'SEC SETTLEMENTS AND ENFORCEMENT ACTIONS GOODWINsecurities and that the sale of those tokens was anpurchases, the profile of initial purchasers, lockup unregistered securities offering. First, the court foundrestrictions for initial purchasers, and the intent of initial that the initial purchasers invested money by providingpurchasers. Fourth, the court found that a reasonable U.S. dollars or euros to Telegram in exchange for theinitial purchasers expectation of profits was based future delivery of Grams. Second, the court found thaton the essential entrepreneurial and managerial there was a common enterprise because Telegramefforts of Telegram because Telegrams commitment pooled the investments made by the initial purchasersto support the blockchain and the integration of the blockchain with Telegrams pre-existing Messenger platform and user base were essential to the success of the blockchain and Grams and because grants of Applying the test set forth in SEC v. W.J. Howeyone percent of all Grams to Telegrams founders and another three percent to the development team, subject Co., the court found that the SEC had shown ato a four-year lockup period, incentivized the founders substantial likelihood of success in proving thatand development teams continued support for the Grams were securities and that the sale of thoseblockchain and Grams. In addition, the court determined tokens was an unregistered securities offering.that the ICO did not qualify for an exemption from the The court found that the initial purchasers hadregistration requirements.a reasonable expectation of profits becauseFollowing the courts order, Telegram filed a motion a reasonable initial purchaser would haveseeking clarification as to whether the preliminary purchased Grams with investment intent injunction applied only to U.S.-based purchasers (which i.e., the expected ability to resell Grams at aconstituted less than half of all initial purchasers) or to profit in the secondary marketbased on theall purchasers. Telegram argued that the preliminary injunction should reach only U.S.-based purchasers substantially discounted sale price, the sizebecause it otherwise would be contrary to the U.S. and concentration of purchases, the profile ofSupreme Court precedent of Morrison v. National initial purchasers, lockup restrictions for initialAustralia Bank Ltd., 561 U.S. 247 (2010), that precluded purchasers, and the intent of initial purchasers. the extraterritorial application of the U.S. securities laws. The court made clear that the preliminary injunction prohibited Telegram from delivering Grams to any person or entity. The court held that the scope of the to develop the blockchain and because the ability ofpreliminary injunction was not contrary to Morrison each initial purchaser (and Telegram) to profit dependedbecause the resale of Grams by initial purchasers in entirely on the successful launch of the blockchainthe secondary market likely would involve sales to and Telegrams reputation. Third, the court found thatU.S.-based purchasers. In addition, the court rejected the initial purchasers had a reasonable expectation ofTelegrams proposal to limit future sales of Grams only profits because a reasonable initial purchaser wouldto non-U.S. purchasers as having doubtful real-world have purchased Grams with investment intenti.e.,enforceability given that the blockchain was designed the expected ability to resell Grams at a profit into promote anonymity.the secondary marketbased on the substantiallyTelegram has appealed the courts order granting a discounted sale price, the size and concentration ofpreliminary injunction.14'