The Court determined that the SEC had shown a substantial likelihood of success in proving that the Defendants’ 2018 offering was "part of a larger scheme to distribute those Grams into a secondary public market, which would be supported by Telegram's ongoing efforts."3 According to the Court, such an offering would constitute the offering of securities under the Howey test. The Howey test provides the framework for determining whether an instrument is an "investment contract," which may need to be registered as a securities offering unless an exemption applies. It consists of the following four prongs: (i) investment of money, (ii) common enterprise, (iii) expectation of profit, and (iv) efforts of another.4
The Defendants argued that their offering consisted of two distinct sets of transactions: the 2018 purchase agreements with sophisticated investors, and the delivery of the Grams when the TON blockchain launches.5 While the Defendants conceded that the purchase agreements are securities, the Defendants claimed that the Grams would be commodities upon issuance. According to the Defendants, these two sets of transactions must be reviewed separately from a securities law perspective. The analysis of whether or not the issuance of Grams constitutes a securities offering must be made at the launch of the TON blockchain.