The US Securities Exchange Commission has charged crypto asset entrepreneurs Justin Sun and three of his companies – Tron Foundation Limited, BitTorrent Foundation Limited, and Rainberry Inc., for unregistered offers and sales of crypto asset securities.
These include Tronix (TRX), and BitTorrent (BTT).
The authority also charged Sun and his companies with “fraudulently manipulating 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,” a statement by the US Securities Exchange Commission said.
Crypto promotion scheme
American celebrities Lindsay Lohan, Jake Paul, Ne-Yo are among the eight who were charged for illegally advertising TRX and/or BTT without disclosing that they were compensated for doing so and the amount of their compensation.
The others include DeAndre Cortez Way (Soulja Boy), Austin Mahone, Michele Mason (Kendra Lust) and Miles Parks McCollum (Lil Yachty).
However, six of eight celebrities charged agreed to pay a total of over $400,000 in “disgorgement, interest, and penalties to settle the charges, without admitting or denying the SEC’s findings”. Mahone and Cortez Way did not agree to the same.
The SEC also alleged that Sun violated the antifraud and market manipulation provisions of the federal securities laws by orchestrating a scheme to artificially inflate the apparent trading volume of TRX in the secondary market, according to the statement.
Sun allegedly told his employees to engage in over 600,000 wash trades of TRX between two crypto asset trading platform accounts he controlled, from April 2018 to February 2019.
TRX allegedly wash traded between 4.5 million and 7.4 million TRX on a daily. However, the SEC said that this scheme required a significant supply of TRX, which Sun allegedly provided.
Sun also sold TRX into the secondary market, generating proceeds of $31 million from illegal, unregistered offers and sales of the token, the statement added.
“As alleged, Sun and his companies not only targeted US investors in their unregistered offers and sales, generating millions in illegal proceeds at the expense of investors, but they also coordinated wash trading on an unregistered trading platform to create the misleading appearance of active trading in TRX,” SEC Chair Gary Gensler said.
“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,” he added.
Sun and their associates utilised a traditional tactic to deceive and cause financial damage to investors, according to Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
Grewal explained that they initially issued securities without fulfilling the necessary requirements for registration and disclosure, and subsequently, they engaged in market manipulation of those same securities.
“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. This is the very conduct that the federal securities laws were designed to protect against regardless of the labels Sun and others used,” he said, adding that the SEC remains “neutral” about the technologies at issue as well as investor protection.
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