SEC v. Telegram: A Global Message

Abstract

In 2020, pursuant to a request by the U.S. Securities and Exchange Commission (SEC) in SEC v. Telegram, Judge Castel of the Southern District of New York ordered a global preliminary injunction against the sale of a new cryptoasset. Although the order was issued prior to trial, the proposed issuer’s eventual decision not to appeal means that this order is the latest judicial pronouncement about the global impact of U.S. securities laws in the rapidly developing cryptoasset ecosystem.

While there are potentially valid reasons to apply U.S. securities laws extraterritorially, there are even more that make this approach problematic. Not only is the U.S. approach based on a statute that dates back nearly 90 years, but the test being used to determine application of that statute dates back to 1946. Neither the statute nor the test were developed with the special attributes of cryptoassets in mind, yet the SEC has insisted on a relatively aggressive and nearly monolithic response to crypto offerings, saying that only Bitcoin, Ethereum, and a few non-convertible forms of crypto should be beyond the securities law requirements.

By insisting on application of the U.S. law to assets sold by foreign issuers to foreign investors, the U.S. is running the risk of decreasing the possibility of international consensus, diminishing the international influence of the U.S., and reducing potential support for otherwise valid and viable business operations for both investors and entrepreneurs. This article makes the case that it is unwise to demand such a wide extraterritorial application of U.S. law. Instead, it suggests that the SEC change its operational focus, or that courts choose not to follow the rule announced in SEC v. Telegram. If neither of those occurs, Congress should step in to redirect such efforts in the future.

Keywords: cryptocurrencies,bitcoin,securities,ethereum,cryptoassets,SEC,Securities and Exchange Commission

JEL Classification: A10,E42,G28,K22,K23