“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.”
The Securities and Exchange Commission has announced charges against crypto asset entrepreneur Justin Sun for the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT).
The defendant is also charged for fraudulently manipulating the secondary market for TRX through extensive wash trading.
Wash trading allegedly allowed to generate proceeds of $31 million from TRX sales
Wash trading 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.
From at least April 2018 through 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 7.4 million TRX wash traded daily.
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 $31 million from illegal, unregistered offers and sales of the token.
Most celebrities settled with SEC by paying a total of $400,000+
In addition to charges against Justin Sun and his companies, the financial watchdog has taken action against 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)
• Aliaune Thiam (Akon)
With the exception of Cortez Way (Soulja Boy) and Austin Mahone, the celebrities charged 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.
SEC Chair Gary Gensler said: “This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure. As alleged, Sun and his companies not only targeted U.S. 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. 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.”
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, commented: “While we’re neutral about the technologies at issue, we’re anything but neutral when it comes to investor protection. 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.”
