The US Securities and Exchange Commission (SEC) recently announced that it has charged Justin Sun, a prominent crypto entrepreneur, and three companies—Tron Foundation, BitTorrent, and Rainberry Inc—for allegedly selling unregistered “crypto asset securities.” ”
The SEC alleges that Sun and its companies are offering and selling Tronix (TRX) and BitTorrent (BTT) tokens to the public without registering the tokens as securities, following a crackdown by regulatory agencies on the crypto industry.
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In addition to the charges of unregistered offering and sale of “securities” of crypto assets TRX and BTT, the SEC also accused Justin Sun and companies of alleged fraudulent activities related to TRX.
The SEC alleged that Sun and his company engaged in extensive wash trading to “manipulate” the secondary market for TRX. These allegations of wash trading involve the simultaneous buying and selling of the same crypto asset to make it appear that there is more trading activity than there really is.
The regulatory body also accused Sun and his company of incentivizing celebrities to promote TRX and BTT without disclosing compensation.
Celebrities named in the allegations are Lindsay Lohan, Jake Paul, DeAndre Cortez Way (Soulja Boy), Austin Mahone, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty), Shaffer Smith (Ne-Yo), and Aliaune Thiam (Account).
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The SEC complaint alleges that Sun and his company offered and sold TRX and BTT tokens as investments through multiple unregistered “reward programs.” The program allegedly directed interested parties to promote the token on social media, recruit others to Tron-related Telegram and Discord channels, and create BitTorrent accounts in exchange for TRX and BTT distributions.
The SEC stated that the reward program did not provide investors with accurate and complete information and did so without disclosing the risks associated with the investment. In addition, Sun is accused of violating the anti-fraud and market manipulation provisions of the federal securities laws by allegedly planning a scheme to “artificially” inflate Tronix’s apparent trading volume.
The SEC stated that from April 2018 to February 2019, Sun directed its employees to engage in more than 600,000 TRX wash trades between two controlled crypto asset trading platform accounts, with TRX wash trades between $4 million and $7 million per day. SEC Chairman Gary Gensler stated:
As alleged in the complaint, Sun and others use an old playbook to mislead and harm investors by first offering securities without complying with registration and disclosure requirements and then manipulating the market for securities too. At the same time, Sun paid celebrities with millions of social media followers to make unregistered offers, specifically directing them not to disclose their compensation. It’s an act designed to protect federal securities laws regardless of the label Sun and others use.
According to the SEC, all celebrities except DeAndre Cortez Way (Soulja Boy) and Austin Mahone agreed to settle the charges by paying more than $4,000,000 in disgorgement, interest, and penalties after the charges were filed.
Featured images from Unsplash, charts from TradingView.com