The U.S. Securities and Exchange Commission (SEC) announced charges against crypto asset entrepreneur Justin Sun and three of his companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), for the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT). The SEC also charged them with secondary market manipulation through extensive washing. Lindsay Lohan and other celebrities have been charged for touting TRX and BTT.
Allegedly, Justin Sun and his companies fraudulently manipulated the secondary market for TRX 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, and for orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation.
The SEC simultaneously charged the following eight celebrities for illegally touting TRX and/or BTT without disclosing their compensation and the amount of their compensation.
- Lindsay Lohan
- Jake Paul
- DeAndre Cortez Way (Soulja Boy)
- Austin Mahone
- Michele Mason (Kendra Lust)
- Miles Parks McCollum (Lil Yachty)
- Shaffer Smith (Ne-Yo)
- Aliaune Thiam (Akon)
The SEC’s complaint alleges that Justin Sun and his companies offered and sold TRX and BTT as investments through multiple unregistered “bounty programs,” which directed interested parties to promote the tokens on social media, join and recruit others to Tron-affiliated Telegram and Discord channels, and create BitTorrent accounts in exchange for TRX and BTT distributions.
The complaint 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. According to the complaint, each of these unregistered offers and sales violated Section 5 of the Securities Act.
The Commission also alleges that Sun orchestrated a scheme to artificially inflate the apparent trading volume of TRX in the secondary market. From at least April 2018 through February 2019, Sun allegedly directed his employees to engage in more than 600,000 wash trades of TRX between two crypto asset trading platform accounts he controlled, with between 4.5 million and 7.4 million TRX wash traded daily. This scheme required a significant supply of TRX, which Sun allegedly provided. As alleged, Sun also sold TRX into the secondary market, generating proceeds of $31 million from illegal, unregistered offers and sales of the token.
This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure.As alleged, Sun and his companies … coordinated wash trading on an unregistered trading platform to create the misleading appearance of active trading in TRX. Sun further induced investors to purchase TRX and BTT by orchestrating a promotional campaign in which he and his celebrity promoters hid the fact that the celebrities were paid for their tweets.SEC Chair Gary Gensler
Except for Cortez Way and Mahone, the celebrities charged agreed to pay a total of more than $400,000 in disgorgement, interest, and penalties to settle the charges without admitting or denying the SEC’s findings.