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In SEC Telegram Case Amicus Brief By Chamber of Digital Commerce Argues Howey Standard

By Matthew Russell Lee, Exclusive Patreon
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SDNY COURTHOUSE, Jan 21 – In the SEC's case against Telegram and its proposed Gram crypocurrency, Federal Judge P. Kevin Castel held a teleconference on the afternoon of January 6 on the subject of bank records, see below.

   Early on January 21 the Chamber of Digital Commerce filed a motion, declaration and memorandum of law with Judge Castel seeking leave to submit an amicus brief in the case.

  As its interest in the case, the Chamber of Digital Commerce says that it "represent[s] more than 200 companies that are investing in and innovating with  blockchain-based technologies, including global financial institutions, emerging technology companies, software developers, consultancies, investment firms, and law firms."

   The stated goal of its amicus brief is to convince Judge Castel to "apply the reasoning used by the U.S. Supreme Court in SEC v. W.J.  Howey Co., 328 U.S. 293 (1946) over 70 years ago and maintain the distinction between  investment contracts and their underlying assets, making clear that an asset does not become a  security simply by virtue of being the subject of an investment contract (i.e., a securities  transaction)." 

    The SEC on January 2 asked Judge Castel to order Telegram to disclose bank records before or during its two day deposition of Telegram founder Pavel Durov January 7-8 in Dubai.

   On the January 6 teleconference, Telegram's counsel, Alex Drylewski of Skadden Arps, argued that producing the bank records will requiring reviewing the privacy rights of financial counterparties in 30 or more jurisdictions. More on Patreon here.

 Now on January 15, the SEC has moved to strike Telegram's first affirmative defense (of "void for vagueness"), saying that Telegram's response should be due on January 21, and Telegram has moved for summary judgment. As another industry participatnt has remarked to Inner City Press, When goliaths fight...

  Late on January 10, the SEC renewed its request for the records and stating "Telegram does not even mention the names of the foreign countries whose laws might apply, nor does it cite any specific data privacy laws. At his deposition two days ago, Mr. Durov, the CEO of a company holding approximately $1.3 billion of investor assets, similarly claimed [TWO LINES REDACTED] See Ex. A (Excerpts of Dep. of Pavel Durov, dated Jan. 7-8, 2020) at 283:17—284:9. The Court therefore cannot assess the threshold question of which country’s data privacy laws may even apply to Telegram’s handling of the data based on Telegram’s vague submission." Why the redaction? Who's more secret?

  Now on January 13 Judge Castel has instructed Telegraph to produce the banking record by February 26: " In light of the parties' arguments presented in their letters and during the January 6, 2020 telephonic conference, the Court orders defendants to produce the requested bank records. The bank records may be produced under a Confidentiality Order. Only redactions necessitated by foreign privacy laws shall be permitted and a log stating the basis for any redaction shall be produced at the time the redacted documents are produced. Defendants shall produce the bank records on a rolling basis and shall complete production by February 26, 2020. The Court does not anticipate extending this date nor the existing schedule for the motions for summary judgment or for a preliminary injunction. (Signed by Judge P. Kevin Castel on 1/13/2020) (jwh) " More on Patreon here.

    Judge Castel on January 6 declined to extend the deadlines in the case but directed Telegram to, by January 9, filed a proposed schedule to disclose or at least review for privacy the requested bank records.

  Now on the evening of January 9, Telegram's law firm Skadden Arps has written that the SEC's requests cover 770 individuals or entities and that since September they have only been able to review 76, finding 12 separately jurisdictions. They want five to seven weeks to do the work. But how would have impact motions and a trial? More on Patreon here.

     After briefing, there will be an in-person hearing on February 18, on both the motions for preliminary injunction and for summary judgment. The SEC's Jorge Tenreiro declined to consolidate that with the trial on the merits. Telegram wants a bench trial, and says the SEC wants a jury trial.

  Drylewki said that if the case or threat of injuction is not resolved by the end of April, under the terms of the private placement Telegraph would have to give back the money to investors. Inner City Press, which after requesting it was present in Judge Castel's chambers for the teleconference, will continue to cover this case.

Soon after the teleconference it reported thet above; hours later, from the court, this: "ORDER denying without prejudice [52] Letter Motion to Compel: The Court held a telephone conference with parties on January 6, 2020 to address the discovery dispute raised in plaintiff's letter of January 2, 2020. (Doc. 52). (!) The parties agree that an evidentiary hearing is not required to decide the motion for a preliminary injunction, which therefore will be decided on written submissions and oral argument alone. (2) The scheduled depositions may proceed with no restrictions placed on plaintiff's ability to question witnesses regarding the issues raised in plaintiffs January 2 letter. (Doc. 52). (3) The Court denies, without prejudice, plaintiff's application to compel the production of defendant's bank records. (Doc. 52). By January 9, 2020, defendant shall set forth in a declaration a proposed schedule for a review of the requested bank records to ensure that production of such records complies with foreign data privacy laws. (Signed by Judge P. Kevin Castel on 1/6/2020) (jwh)."

  It is SEC v. Telegram, 19-cv-0439 (Castel). More on Patreon here.


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