A sensational and intricate scheme involving a cadre of high-profile celebrities and the often enigmatic realm of cryptocurrency has led the US Securities and Exchange Commission (SEC) to charge Justin Sun, Tron Foundation Ltd, BitTorrent Ltd, and Rainberry Inc (previously BitTorrent) with illicitly offering and selling crypto asset securities Tronix (TRX) and BitTorrent (BTT).
The SEC claims that Sun and his associated companies fraudulently manipulated the secondary TRX market through an elaborate wash trading system, creating a façade of active trading without any actual shift in ownership.
Moreover, the SEC accuses Sun and his firms of masterminding a plot that paid celebrities to advocate for TRX or BTT without revealing their compensated promotions.
Eight celebrities face charges for unlawful touting, including: 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).
Excluding Cortez Way and Mahone, the charged celebrities have consented to pay over $400,000 in disgorgement, interest, and penalties to resolve the charges, without conceding or contesting the SEC’s allegations.
‘Bounty Programs’ and Airdrops in SEC’s Crosshairs
The SEC’s legal filing, submitted to the U.S. District Court for the Southern District of New York, contends that Sun and his companies marketed and sold TRX and BTT as investments via unauthorized “bounty programs.”
These schemes incentivized participants to advertise the tokens on social media, recruit others to Tron-related Telegram and Discord channels, and establish BitTorrent accounts in return for TRX and BTT allocations.
The complaint further asserts that Sun, BitTorrent Foundation, and Rainberry conducted unauthorized monthly airdrops of BTT to investors, including those in the United States, who held TRX in Tron wallets or on compatible crypto asset trading platforms. Each of these unregistered transactions contravened Section 5 of the Securities Act.
Justin Sun hit back against the charges on twitter, dismissing the charges as further evidence of the SEC’s incompetence in handling cryptocurrency asset regulation.
It is no secret that the SEC's regulatory framework for digital assets is still in its infancy and is in need of further development.
— H.E. Justin Sun 孙宇晨 (@justinsuntron) March 23, 2023
Most recently, for example, Dominica adopted #TRX and #BTT as legal tender.
— H.E. Justin Sun 孙宇晨 (@justinsuntron) March 23, 2023
Silver-tongued Justin Sun Used Wash Trading to Bump TRX Transaction Volumes
The SEC also argues that Sun breached antifraud and market manipulation regulations within federal securities laws by artificially boosting the perceived trading volume of TRX on the secondary market.
Sun allegedly instructed his employees to execute over 600,000 wash trades of TRX between two crypto trading platform accounts he controlled, with daily wash trades ranging between 4.5 million and 7.4 million TRX.
SEC Chair Gary Gensler stated, “This case demonstrates once more the significant risk investors encounter when crypto asset securities are marketed and sold without appropriate disclosure.”
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, added, “Sun and his collaborators employed a time-tested strategy to deceive and harm investors by initially offering securities without adhering to registration and disclosure requirements, and subsequently manipulating the market for those securities.”
The SEC’s actions reveal the convoluted web of deception and manipulation that can entangle investors in the rapidly advancing and frequently misunderstood domain of cryptocurrency.
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