Crypto entrepreneur Justin Sun has been charged with fraud by US regulator the Securities and Exchange Commission.
The lawsuit also targets three of his companies: Tron Foundation Limited, BitTorrent Foundation Ltd, and Rainberry Inc (formerly BitTorrent).
It accuses Sun and the companies of the unregistered offer and sale of cryptoasset securities Tronix (TRX) and BitTorrent (BTT), and also of fraudulently manipulating the secondary market for TRX through extensive wash trading – the simultaneous or near-simultaneous purchase and sale of a security to make it appear actively traded without an actual change in ownership.
“From at least April 2018 through to 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 7.4m TRX wash traded daily,” stated the SEC.
“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 $31m from illegal, unregistered offers and sales of the token.”
The lawsuit, filed in New York, also accuses Sun and his companies of orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation.
The SEC simultaneously charged eight celebrities for illegally touting TRX and/or BTT without disclosing that they were compensated for doing so, 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) and Aliaune Thiam (Akon).
“While we’re neutral about the technologies at issue, we’re anything but neutral when it comes to investor protection,” said Gurbir S. Grewal, director of the SEC’s division of enforcement.
“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 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.”
With the exception of Cortez Way and Mahone, the celebrities 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.
Tron did not immediately respond to a request for comment from BusinessCloud.
Meanwhile French social media influencers are set to be banned from promoting unlicensed crypto products under new plans. The National Assembly’s Economics Committee voted in favour of a law designed to prevent unsafe products or scams from being hawked by celebrities.