In a press release of 11 October last the U.S. Securities and Exchange Commission (“SEC”), the US market regulation authority, announced that it had obtained a temporary restraining order from the Federal Courtagainst Telegram Group Inc, the owner of the homonymous instant messaging service, and its 100% controlled company TON Issuer Inc. relating to the Initial Coin Offering (“ICO”) of “Gram” digital tokens issued to finance the development of TON blockchain technology.
The US authority maintained that this offer to the public contravened federal laws in matters of share transparency, since the issuers had not registered the operation in advance with the SEC, as required by the Securities Act enacted by the US Congress in 1933 and regulating transparency in the issuing of shares.
As may be read in the grounds upon which the order was issued,the SEC held that expectation of profit by the purchasers of Gram was a sufficient premise for considering the virtual currency a share, and therefore subject to Federal provisions and formalities in matters of registration and complete transparency of the documentation supporting the offer.
On the basis of these arguments, the seised Court ordered Telegram Group Inc. and TON Issuer Inc. not to continue with the ICO and the subsequent sale of Gram tokens to purchasers, initially scheduled for 31 October 2019, until the end of the proceedings,adjourned to February 2020 for the discussion stage.
One of the numerous arguments put forward by Telegram in the note to investors issued following the ruling is that Gram digtal tokens cannot be equated to shares, by virtue of the current Federal rules, considered by many to be non-homogeneous and incomplete in relation to thephenomenon.
This issue has reached Italy at a crucial stage in the debate on the extent of,and on the need to regulate, the phenomenon of virtual currency and, consequently, its offer on the market through ICOs, i.e. raising funds in exchange for issue of a virtual currency.
In line with the international scenario,the Italian legislator has not yet approached this issue in a homogenuous, uniform manner from a regulatory and fiscal perspective.
The only specific reference to virtual currency is to be found in Legislative Decree 90/2017 on Money Laundering which, in implementing Directive (EU) 2015/849, in addition to defining “virtual currency”, has extended to “Providers of Services Related to the Use of Virtual Currencies” the obligation to register activity in a specialsection of the Register held by the “Organismo per la gestione degli elenchi degli agenti in attività finanziaria e dei mediatori creditizi” (Organisation for the Management of FinancialAgent and Credit Mediator Directories).
Two recent interventions of the Bank of Italy and CONSOB fit into this legislative gap.
The Bank of Italy, in a document of 18 March 2019 entitled “Aspetti economici e regolamentari delle «cripto-attività»”, analyzed the economic features of Bitcoin and similar "crypto-activities", and the regulatory approaches adopted in the various jurisdictions. On 19 March 2019 CONSOB (The Italian National Commission for Companies and the Stock Exchange) launched a national debate on ICOs and crypto-activity exchanges, through a public consultation entitled “Le offerte iniziali e gli scambi di cripto-attività”.
Of the various observations in that section of the document concerning a possible regulatory approach to the question, CONSOB focused on identifying any “hybrid-token” crypto-activities which, having a variable mix of features, might not be considered comparable tofinancial instruments or products, and therefore not subject to the relative rules on investor protection.
We must now await updates on the outcome of the CONSOB consultation and the US proceedings against Telegram in order to evaluate national and international progress on the regulation of virtual currencies.