Bitcoin in the hands of a child. The boy holds a metal coin of crypto currency in his hands.

A messaging app company that sought financing through an initial coin offering (ICO) has agreed to return over US$1 billion to investors.

A U.S. court approved settlements between the U.S. Securities and Exchange Commission (SEC) and Telegram Group Inc. — a company based in the British Virgin Islands that operates an encrypted messaging app — which will see the firm return US$1.2 billion to investors and agree to pay a US$18.5 million penalty.

According to the SEC’s complaint against the firm and its subsidiary, TON Issuer Inc., the company sold 2.9 billion units of its crypto currency, known as “Grams,” to investors to finance its business.

The SEC alleged that this amounted to an illegal, unregistered securities offering.

Without admitting or denying the regulator’s allegations, the defendants agreed to disgorge US$1.2 billion from the sale of Grams, and to pay a penalty.

Additionally, for the next three years Telegram is required to notify the SEC before issuing any digital assets.

“New and innovative businesses are welcome to participate in our capital markets but they cannot do so in violation of the registration requirements of the federal securities laws,” said Kristina Littman, chief of the SEC enforcement division’s cyber unit.

“This settlement requires Telegram to return funds to investors, imposes a significant penalty, and requires Telegram to give notice of future digital offerings,” she said.

“Our emergency action protected retail investors from Telegram’s attempt to flood the markets with securities sold in an unregistered offering without providing full disclosures concerning their project,” said Lara Shalov Mehraban, associate regional director of the SEC’s New York office.