PAID-UP CAPITAL

Someone created a sham British company to exploit Telegram’s mega ICO

Obsession
Future of Finance
Obsession
Future of Finance

Someone created a sham company in the United Kingdom that bears the name of Telegram’s blockbuster crypto project, the Telegram Open Network, which has raised $1.7 billion in funding for its token sale to date. Telegram is a chat app that has 200 million monthly active users. It’s raising money to develop a number of services, such as file storage, by selling crypto tokens.

A company named Telegram Open Network Limited was incorporated on Feb. 28, according to documents lodged with the British companies register, Companies House. It names Telegram founder Pavel Durov as the company’s sole shareholder, director and secretary. The firm claims £800 million (US$1.13 billion) in paid-up capital.

After some speculation on Twitter about the authenticity of the new entity, Telegram tweeted that it wasn’t connected to Durov:

The listing has a number of red flags that raise suspicion. It lists Durov’s citizenship as British and base of operations as the UK. He is in fact a citizen of St. Kitts and Nevis after contributing $250,000 to the island country’s sugar industry. Durov left Russia after being forced out of social network Vkontakte, better known as VK, which he founded. Separate filings for the British partnership that publishes the app on the Android app store, Telegram Messenger LLP, show that he listed himself as a resident of the United Arab Emirates as recently as Feb. 21.

The fact that the company lists £800 million in paid-up capital is another warning sign. One crypto investor, who considered taking part in Telegram’s ICO, observed that pumping this much capital into a British entity would immediately invite a hefty tax bill. “It’s a scam of some sort,” the investor, who didn’t wish to be named, said.

It’s not difficult to incorporate a company with fraudulent details in the British companies register. The registration process at Companies House relies on self-certification by the applicant, and can be completed online for £12. Companies House reported 528 fraudulent cases referred to law enforcement in 2012 (pdf, p. 24), but it hasn’t published updated figures in recent years. Sham companies may be set up to create the illusion of a firm in good financial standing to dupe customers, investors, or suppliers, according to a report by the Fraud Advisory Panel (pdf), a British non-profit.

In response to a query from Quartz, Companies House says companies are responsible for filing accurate information. “Companies House carries out numerous checks on all filings, including incorporation. Companies are responsible for ensuring they file accurate information, and are required to sign a statement of compliance on incorporation to confirm that they have complied with Companies Act requirements. It is an offence to knowingly or recklessly file false or misleading information with the Registrar of Companies,” the agency said in a statement.

But the opacity of the Telegram ICO, and Durov’s reliance on offshore investment entities with British links, helped lend an element of authenticity to the sham company. Telegram Messenger LLP, which is registered in the UK, has two partners that are both offshore companies: a British Virgin Islands entity called Dogged Labs, and a Belize firm called Telegraph Inc.

The Telegram ICO has gripped the attention of crypto investors in recent months. The Telegram chat app has 200 million active users a month, providing a potentially large userbase for its crypto-token. Investor demand to participate in the ICO has soared, with early investors flipping their holdings for double their cost. Telegram raised $850 million last week, on top of $850 million raised in February, according to two filings it made with the US Securities Exchange Commission. Telegram had earlier told investors it was planning to raise as much as $2 billion from private investors.

The sham company has claimed at least one victim: the online magazine Calvert Journal published a piece on the firm, thinking Durov had gained British citizenship, before Telegram issued its denial. It has been corrected. An earlier email from Quartz seeking clarification on the authenticity of the British entity sent to Telegram’s ICO team and Durov went unanswered.

This story was updated with a statement from Companies House.


Read next: Telegram plans to spend more than $100 million of its mega-ICO on salaries, offices, and consultants

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