The Securities and Exchange Commission (SEC) on Wednesday announced charges against entrepreneur Justin Sun and eight celebrities, including actress Lindsay Lohan, boxer and social media star Jake Paul, and rapper Akon, for allegedly “illegally touting” crypto asset securities Tronix (TRX) and BitTorrent (BTT).
Sun and his companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc., were also charged for unregistered offers and sales of crypto asset securities TRX and BTT.
According to the SEC, Sun and his companies unlawfully offered and sold TRX and BTT through unregistered “bounty programs.”
These programs directed interested parties to promote the tokens on social media, join and recruit others to Tron-affiliated Telegram and Discord channels, and create BTT accounts in exchange for TRX and BTT distributions.
The celebrities are accused of being compensated by Sun for promoting TRX and BTT on social media without disclosing the deal as part of an alleged scheme by Sun. The entrepreneur is accused of inducing investors to buy TRX and BTT via the celebrity-promoted campaign of tweets.
In addition to Lindsay Lohan, Jake Paul, and Akon, the other celebrities caught up in the crypto crackdown are DeAndre Cortez Way (Soulja Boy), Austin Mahone, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty), and Shaffer Smith (Ne-Yo).
Some of the celebrities charged, with the exception of Cortez Way and Mahone, agreed to pay a collective total of more than $400,000 in disgorgement, interest, and penalties to settle the charges without admitting or denying the SEC’s findings.
‘Age-Old Playbook’
Sun’s alleged scheme was from “an age-old playbook” to mislead investors by first offering securities without complying with registration and disclosure requirements, then manipulating the market for those very securities, according to Gurbir Grewal, director of the SEC’s Division of Enforcement.“While we’re neutral about the technologies at issue, we’re anything but neutral when it comes to investor protection,” Grewal said.
“At the same time, Sun paid celebrities with millions of social media followers to tout the unregistered offerings, while specifically directing that they not disclose their compensation,” Grewal added. “This is the very conduct that the federal securities laws were designed to protect against regardless of the labels Sun and others used.”
The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, further alleges that Sun, BitTorrent Foundation, and Rainberry offered and sold BTT in unregistered monthly airdrops to investors, including in the United States, who purchased and held TRX in Tron wallets or on participating crypto asset trading platforms.
The SEC alleges that each of these unregistered offers and sales violated Section 5 of the Securities Act.
The SEC also charged Sun and his companies with fraudulently manipulating the secondary market for Tronix through extensive wash trading, which involves the simultaneous or near-simultaneous purchase and sale of a security to make it appear actively traded without an actual change in beneficial ownership.
Sun is also accused of violating antifraud and market manipulation provisions of the federal securities laws by artificially inflating the trading volume of Tronix in the secondary market. The SEC claims that between April 2018 and February 2019, Sun directed his employees to engage in over 600,000 wash trades of Tronix between two crypto asset trading platform accounts he controlled, with between 4.5 million and 7.4 million Tronix wash traded daily.
This scheme allegedly required a significant supply of Tronix, which Sun provided. As per the complaint, Sun also sold Tronix into the secondary market, generating $31 million in proceeds from illegal, unregistered offers and sales of the token.
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