The cryptocurrency industry continues to be embroiled in scandals, fraud charges and the loss of confidence from investors.
This time it is Justin Sun, the founder of Tron, a cryptocurrency platform, who has been charged with allegedly selling unregistered crypto securities, the SEC said. The security regulator also alleges that Sun commited fraud by manipulating the secondary market for Tronix (TRX), the native token of the platform, and another token BitTorrent (BTT).
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Eight celebrities, including actress Lindsay Lohan, social media personality Jake Paul, porn star Michele Mason (Kendra Lust), and musicians Miles Parks McCollum (Lil Yachty), Austin Mahone, DeAndre Cortez Way (Soulja Boy), Shaffer Smith (Ne-Yo) and Aliaune Thiam (Akon), were also charged by the SEC for touting the crypto assets, TRX and/or BTT without disclosing they were being compensated and the amount they received for their endorsements.
"This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure,” said SEC Chair Gary Gensler. "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.”
Aside from Mahone and Soulja Boy, the other six celebrities agreed to settle with the SEC and paid a total of $400,000 in disgorgement, interest and penalties, without admitting or denying the regulator’s findings.
The cryptocurrency industry has been impacted by fraud and loss of shareholder value over the past several months.
Do Kwon, the founder of Terraform Labs, the ecosystem behind the Luna and UST cryptocurrencies which collapsed last May, has been arrested in Montenegro, according to local authorities.
From May 9 to May 13, at least $55 billion of market cap disappeared, causing many investors to sustain colossal losses. 3AC was forced into liquidation. Celsius and Voyager filed for Chapter 11 bankruptcy.
Sun and his three companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), were charged with selling unregistered crypto asset securities Tronix and BitTorrent.
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He was 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," the SEC said.
SEC Says Sun 'Manipulating the Market'
“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," said Gurbir Grewal, director of the SEC’s Division of Enforcement.
Sun received another charge for "orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation."
The SEC said Sun and his companies sold both TRX and BTT through multiple unregistered “bounty programs,” which directed people to promote the tokens on social media, according to the SEC's complaint that was filed in U.S. District Court for the Southern District of New York.
The complaint also alleges that the founder and his companies encouraged people to join and recruit others to Tron-affiliated Telegram and Discord channels and create BitTorrent accounts in exchange for TRX and BTT distributions.
Another allegation by the SEC is that Sun, BitTorrent Foundation, and Rainberry offered and sold BTT in unregistered monthly airdrops to investors.
The investors included Americans who purchased and held TRX in Tron wallets or in other crypto asset trading platforms, each of these offers and sales were unregistered and violated Section 5 of the Securities Act.
From 2018 to 2019, the SEC alleges 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."
He allegedly directed his employees to engage in over 600,000 wash trades of TRX between two crypto asset trading platform accounts he controlled, the SEC said.
There was a total of between 4.5 million and 7.4 million TRX wash traded daily.
"This scheme required a significant supply of TRX, which Sun allegedly provided," the SEC said. "As alleged, Sun also sold TRX into the secondary market, generating proceeds of $31 million from illegal, unregistered offers and sales of the token."
Sun gained notoriety after being revealed as the winning bidder of a Blue Origin flight. He paid $28 million for the first seat on Blue Origin’s inaugural New Shepard rocket.
The $28 million was paid to Blue Origin’s foundation Club for the Future that benefited 19 space-based charities to inspire students to pursue careers in STEM and work on developing life in space.
Blue Origin had said in 2021 that Sun and five people would fly on a New Shepard flight but the flight hasn't occurred.
Blue Origin, Founded in 2000 by billionaire entrepreneur by Jeff Bezos, did not respond immediately to a request for comment on the flight or Tron's bid.
