Eight celebrities have also filed charges of illegally promoting Sun cryptocurrency securities
The Securities and Exchange Commission today announced indictments against crypto-asset entrepreneur Justin Sun and three of his wholly-owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd. and Rainberry Inc. (formerly BitTorrent), known for the unregistered offering and sale of crypto assets Tronix (TRX) and BitTorrent (BTT). The SEC also accused Sun and its companies of fraudulently manipulating the secondary market for TRX through extensive wash trading, which involves buying and selling a security simultaneously, or near-simultaneously, to make it appear actively traded without actually changing beneficial ownership, and for orchestrating a celebrity pay program to promote TRX and BTT without disclosing their compensation.
The SEC simultaneously accused the following eight celebrities of illegally promoting TRX and/or BTT without disclosing that they were compensated 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, filed in the U.S. District Court for the Southern District of New York, alleges that Sun and its companies offered and sold TRX and BTT as investments through multiple unregistered “bounty programs” that instructed interested parties to invest the tokens in to promote on social media, join Tron-affiliated Telegram and Discord channels and recruit others and create BitTorrent accounts in exchange for TRX and BTT distros. 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 bought and held TRX in Tron wallets or on participating crypto-asset trading platforms . According to the complaint, all of these unregistered offers and sales violated Section 5 of the Securities Act.
The commission also alleges that Sun violated the provisions of the federal securities laws to combat fraud and market manipulation by orchestrating a plan to artificially inflate the apparent trading volume of TRX in the secondary market. From at least April 2018 to February 2019, Sun allegedly instructed its employees to perform more than 600,000 wash trades of TRX between two crypto asset trading platform accounts it controls, with between 4.5 million and 7.4 million TRX washes traded daily became. This scheme required a sizeable supply of TRX, which Sun reportedly provided. As claimed, Sun also sold TRX on the secondary market, raising $31 million in proceeds from illegal, unregistered offers and sales of the token.
“This case again demonstrates the high level of risk investors face when crypto-asset securities are offered and sold without proper disclosure,” said SEC Chairman Gary Gensler. “As alleged, Sun and its companies not only targeted US investors with their unregistered bids and sales and raked in illicit proceeds of millions at the expense of investors, but also coordinated wash trading on an unregistered trading platform to to create a misleading appearance of active trading in TRX. Sun also prompted investors to buy TRX and BTT by orchestrating an ad campaign in which he and his celebrity promoters hid the fact that the celebrities were being paid for their tweets.”
“While we are neutral on the technologies at issue, we are far from neutral when it comes to investor protection,” said Gurbir S. Grewal, director of the SEC’s Enforcement Division. “As alleged in the complaint, Sun and others used an age-old playbook to mislead and harm investors by first offering securities without complying with registration and disclosure requirements and then manipulating the market for those very securities. At the same time, Sun paid celebrities with millions of social media followers to promote the unregistered offerings, specifically ordering them not to disclose their compensation. This is exactly the behavior that federal securities laws should protect against, regardless of the labels used by Sun and others.”
With the exception of Cortez Way and Mahone, the celebrities indicted today 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.
The SEC investigation was conducted by Adam B. Gottlieb, Ann Rosenfield, John Lucas and John Marino. It was curated by Paul Kim, Michael Brennan, Jorge G. Tenreiro, and David Hirsch. The SEC litigation is led by Timothy Halloran and Mr. Gottlieb, with Melissa Armstrong overseeing it.