Telegram Abandons TON Blockchain Project After Court Fight With SEC

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Telegram founder Pavel Durov wrote in his public channel Tuesday that the Telegram Open Network (TON) project would be discontinued due to the company’s ongoing legal fight with the U.S. Securities and Exchange Commission (SEC).
“Today is a sad day for us here at Telegram. We are announcing the discontinuation of our blockchain project. Below is a summary of what it was and why we had to abandon it,” he wrote.An accompanying blog post said the SEC’s winning of a preliminary injunction in a U.S. court led to the decision because it barred Telegram from launching TON or distributing its gram tokens. The move is an abrupt shift for Telegram, which said less than two weeks ago it would be launching the network in April 2021.

Telegram announced at the end of April its investors could receive 72% of their funds back immediately, or 110% back in a year, once TON had launched. U.S. investors would not be able to take the latter option, Telegram said in a later update. In Tuesday’s post, Durov did not say whether all investors would be immediately refunded or how much they’d receive.

Durov referenced third-party efforts to launch independent versions of the TON blockchain, but said no Telegram employee is involved with these projects.

“While networks based on the technology we built for TON may appear, we won’t have any affiliation with them and are unlikely to ever support them in any way. So be careful, and don’t let anyone mislead you,” he wrote.

TON Labs, a startup that had been running a test network, launched its own version of the network last week, dubbed “Free TON,” after Telegram announced further delays.

Durov also took aim at the injunction barring gram distribution worldwide, noting that the judge in his case had indicated if grams are issued, a U.S. citizen might still be able to access them.

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“Sadly, the U.S. judge is right about one thing: We, the people outside the U.S., can vote for our presidents and elect our parliaments, but we are still dependent on the United States when it comes to finance and technology (luckily not coffee),” he wrote.

The dollar and its influence on the global financial system give the U.S. immense power, Durov said, adding that the country can also influence Apple and Google to remove apps from their respective app stores.

“So yes, it is true that other countries do not have full sovereignty over what to allow on their territory,” he wrote.

Durov closed his post with an appeal to decentralization.

“I want to conclude this post by wishing luck to all those striving for decentralization, balance and equality in the world. You are fighting the right battle,” he wrote. “This battle may well be the most important battle of our generation. We hope that you succeed where we have failed.”

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17,000 People Have Filed Claims for Refunds From QuadrigaCX, Auditor EY Says

Nearly 17,000 individual claims have been filed for the remaining assets of defunct crypto exchange QuadrigaCX, totaling anywhere from $167 million to more than $300 million depending on how the asset are valued.According to a document published Tuesday by Quadriga’s bankruptcy monitor, Ernst & Young, over the past year 16,959 proofs of claims have been filed by the exchange’s former users, claiming assets in bitcoin (BTC), bitcoin cash (BCH), bitcoin SV (BSV), bitcoin gold (BTG), ethereum (ETH), litecoin (LTC), Canadian dollars (CDN) and U.S. dollars (USD). The totals are based on claims filed through May 6, 2020.

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Although EY asked affected users to file claims by Aug. 31 of last year, it acknowledged there was no hard deadline; it continues to receive and process claims, though “the volume of new claim submissions has slowed considerably.”

QuadrigaCX Claims and Values
Source: EY, CoinDesk

EY said it would convert all amounts to a Canadian dollar equivalent before distributing, but did not say how it would value the cryptocurrencies.

The firm took over control of QuadrigaCX on Feb. 5, 2019, days after it filed for civil rehabilitation, a form of protection from creditors for firms trying to survive. The Canadian dollar equivalent for the assets at February 2019 prices would be $234 million ($167 million USD). However, if the cryptos are valued at present prices, the total value could be about $431 million CDN ($307 million USD).

Regarding the claims themselves, EY said it had not finished verifying all of the documents it received. Some contain technical deficiencies, meaning they may not be signed or contain some other small error. Other claims showed values that differed from the ones Quadriga had listed in its database, the document said.

The auditor is working to reconcile the differences.

EY has yet to provide a timeline for when users might expect to see their funds returned.

A note written by Miller Thomson, the court-appointed law firm representing Quadriga’s users, said the Canada Revenue Agency, the country’s tax collector, needed to make a claim against the exchange before any funds could be distributed.

“As Quadriga failed to file tax returns in the ordinary course of business, the determination of a Canada Revenue Agency tax claim against Quadriga is necessary prior to the Trustee declaring any distribution to Affected Users or creditors generally, as tax claims rank [on equal footing] with the unsecured claims of Affected Users,” the note said.

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It’s unclear how long this would take. While a court has given EY permission to turn over documents to the tax collector, Tuesday’s document said this process had not been completed, and the CRA has not yet begun its audit, EY said.

QuadrigaCX went into bankruptcy last year after its founder and CEO Gerald Cotten, who maintained all of the company’s private keys and systems, was reported dead.

EY, which was tasked with recovering assets, found that Cotten appears to have used customer funds to margin trade small-cap cryptocurrencies and buy personal luxury goods, including a private plane and boats.

Quadriga’s now-former users have been casting doubt as to whether Cotten is indeed dead, and have asked the Royal Canadian Mounted Police to exhume his body. The law enforcement agency has yet to respond to this request.
Bradley Keoun

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