Exposes: Crypto Entrepreneur Justin Sun and his Companies Accused of Fraud and Other Securities Law Violations by SEC

Eight celebrities have also been charged with illegally touting Sun’s crypto asset securities.

Crypto Entrepreneur Justin Sun and his Companies Accused of Fraud

The Securities and Exchange Commission charged cryptocurrency entrepreneur Justin Sun and three of his wholly-owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), today for the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT).

Sun and his companies were also charged 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, as well as orchestrating a scheme to pay celebrities to promote TRX and BTT without disclosing their compensation.

The SEC charged the following eight celebrities at the same time with illegally promoting TRX and/or BTT without disclosing that they were compensated for doing so or the amount of their compensation.

  • Lindsay Lohan is a well-known actress.
  • Jake Paul’s formal name is Jake Paul.
  • DeAndre Cortez Boulevard (Soulja Boy)
  • Austin Mahone’s formal name is Austin Mahone.
  • Michele Mason’s formal name is Michele Mason (Kendra Lust)
  • Miles Parks McCollum is an actor (Lil Yachty)
  • Shaffer Smith’s formal name is Shaffer Smith (Ne-Yo)
  • Aliaune Thiam’s formal name is Aliaune Thiam (Akon)

The SEC’s complaint, which was filed in U.S. Sun and his companies are accused of offering and selling TRX and BTT as investments through multiple unregistered “bounty programs” that directed interested parties to promote the tokens on social media, join and recruit others to Tron-affiliated Telegram and Discord channels, and create BitTorrent accounts in exchange for TRX and BTT distributions.

Sun, BitTorrent Foundation, and Rainberry are also accused of offering and selling BTT in unregistered monthly airdrops to investors, including those in the United States, who purchased and held TRX in Tron wallets or on participating crypto asset trading platforms. Each of these unregistered offers and sales, according to the complaint, violated Section 5 of the Securities Act.

The Commission also claims that Sun violated the federal securities laws’ antifraud and market manipulation provisions by orchestrating a scheme to artificially inflate TRX’s apparent trading volume in the secondary market.

Sun allegedly directed his employees to engage in more than 600,000 TRX wash trades between two crypto asset trading platform accounts he controlled from at least April 2018 to February 2019, with between 4.5 million and 7.4 million TRX wash traded daily.

Lindsay Lohan and few other celebrities charged by SEC

This scheme required a large supply of TRX, which Sun allegedly supplied. Sun is also accused of selling TRX into the secondary market, earning $31 million from illegal, unregistered offers and sales of the token.

“This case highlights the high risk that investors face when crypto asset securities are offered and sold without proper disclosure,” said SEC Chair Gary Gensler. “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 give the false appearance of active TRX trading.”

SEC Chair Gary Gensler

Sun persuaded investors to buy TRX and BTT even more by orchestrating a promotional campaign in which he and his celebrity promoters concealed the fact that the celebrities were paid for their tweets.”

“While we are neutral on the technologies in question, we are anything but neutral on investor protection,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. As alleged in the complaint, Sun and others followed an age-old playbook to deceive and harm investors by first offering securities without complying with registration and disclosure requirements, and then manipulating the market for those same securities.

Simultaneously, Sun paid celebrities with millions of social media followers to promote the unregistered offerings, with the explicit request that they not disclose their compensation. This is precisely the type of behavior that federal securities laws were intended to protect against, regardless of the labels used by Sun and others.”

The celebrities charged today, with the exception of Cortez Way and Mahone, 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.

Adam B. Gottlieb, Ann Rosenfield, John Lucas, and John Marino led the SEC’s investigation. Paul Kim, Michael Brennan, Jorge G. Tenreiro, and David Hirsch oversaw it. Timothy Halloran and Mr. Gottlieb will lead the SEC’s litigation, which will be overseen by Melissa Armstrong.

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