In what may be the highest-level U.S. enforcement action to date over an initial coin offering, the Securities and Exchange Commission has charged encrypted messaging app Telegram with illegally selling digital assets.

Telegram launched its ICO last year by raising about $1.7 billion from sales of approximately 2.9 billion “Grams” to 171 private purchasers. The second phase of the offering is due to start no later than Oct. 31, with Telegram delivering the tokens to purchasers, who would then be able to resell them in the public markets.

But the SEC last week filed an emergency enforcement action and obtained a temporary restraining order barring Telegram from “delivering Grams to any persons, or taking any other steps to effect any unregistered offer or sale of Grams.”

According to the commission, which deems Grams to be securities, Telegram has violated federal securities laws by offering the tokens without registration statements that would inform the public about its business operations, financial condition, risk factors, or management.

“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, said in a news release. “Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.”

The civil complaint against Telegram came less than two weeks after the SEC fined blockchain startup Block.one $24 million for conducting an unregistered ICO.

“The SEC isn’t playing around,” Andrew Rossow, an internet and cyberspace attorney, told Coin Telegraph. “It’s time these companies recognize this.”

Telegram has been selling Grams in part to raise money for its Telegram Open Network (TON), a blockchain platform aimed at facilitating payments. Its app boasts over 200 million users worldwide and is popular within the blockchain and cryptocurrency community.

The SEC said the tokens qualify as securities because “the initial purchasers and subsequent investors expect to profit from Telegram’s work: the development of a TON ‘ecosystem,’ integration with Messenger, and implementation of the new TON blockchain.”

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