When Facebook and Instagram finally decided they could no longer put up with far-right figures like Laura Loomer on their platforms and banned her, the fervent anti-Muslim activist called on supporters to follow her on Telegram, a Russian-owned encrypted messaging service. And many did. Not the best optics for a wannabee tech entrepreneur, you'd think.

And you'd be right. In late October, the US Securities and Exchange Commission (SEC), the American financial sector regulator, filed a legal complaint against Telegram, alleging that its 2018 ICO (Initial Coin Offering) had been an illegal sale of securities. The SEC obtained temporary restraining orders against "two offshore entities conducting an alleged unregistered digital token offering in the US and overseas."

Telegram allows users to send encrypted messages to one another and that is what attracts the motley crew of far-right groups. But Telegram also has hundreds of millions of "ordinary" users and that, perhaps perversely, is part of the problem, some believe.

"For some time the company was under the radar, with technology basically outstripping financial regulators' ability to track, let alone stop, its activities," a tech financial expert who declined to be named told DW.

A Russian Mark Zuckerberg

Telegram was created in 2013 by Pavel Durov, a 30-something described by many as the Russian Mark Zuckerberg, who had already founded social media platform VKontakte. With his brother, Nikolai, Durov created the MTProto protocol, the basis for Telegram. Durov provided financing through his Digital Fortress fund. The Telegram Messenger LLP states that its end goal is not to make profit, but the company is not structured as a non-profit organization. It is registered as both an English LLP and an American LLC and does not publish where it rents offices or which legal entities it uses to rent them.

Durov has said the company was headquartered in Berlin between 2014 and early 2015, but was forced to move around thereafter. He fled Russia in 2014 and is now a citizen of the Caribbean nation of St. Kitts and Nevis.

It's a cryptocurrency thing

In December 2017, Telegram said it was planning to launch a blockchain platform for a cryptocurrency, called "gram." The company expected its ICO to be 10 times bigger than the biggest cryptocurrency deal to date, aiming to raise $2 billion (€1.8 billion). Telegram sold about 2.9 billion grams at discounted prices to 171 initial purchasers worldwide, including more than 1 billion grams to 39 US buyers.

Unlike an initial public offering, which gives investors stock ownership in a company, ICOs offer investors tokens that their sellers promise will be valuable once their new digital network is built. The platform was to go live on October 1 to beat others in the race.

Telegram's ICO is the second largest to date, behind Block.one's EOS token sale in 2017-18. EOS raised $4 billion and settled a dispute with the US Securities and Exchange Commission for $24 million in October. The SEC has another ongoing lawsuit over Kik's $100 million ICO.

The Telegram ICO ran in two rounds, each raising $850 million. By April 2018, the firm had reported raising $1.7 billion. But the ICO has now been cancelled and the network has yet to be released. 

In the dock

"Our emergency action is intended to prevent Telegram from flooding the US markets with digital tokens that we allege were unlawfully sold," said Stephanie Avakian, co-director of the SEC's Division of Enforcement. "We allege that the defendants have failed to provide investors with information regarding grams and Telegram's business operations, financial condition, risk factors and management that the securities laws require."

"We have repeatedly stated that issuers cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token," Steven Peikin, co-director of the SEC's Division of Enforcement. "Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public."

Durov must testify in the SEC case, a US federal judge ruled in November. He will be deposed on January 7 or 8, District Judge P. Kevin Castel at the New York Southern District Court said. If they can find him.