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SEC Charges Crypto Entrepreneur Justin Sun, his Companies and Celebrities for Fraud and Other Securities Law Violations

The SEC has charged Justin Sun, a prominent crypto asset entrepreneur, and his wholly-owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), for the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT). In addition, Sun and his companies have been charged with fraudulently manipulating the secondary market for TRX through extensive wash trading and for orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation.

Illegal Touting Charges against Celebrities

The SEC has also charged eight celebrities, including Lindsay Lohan, Jake Paul, and Ne-Yo, for illegally touting TRX and/or BTT without disclosing that they were compensated for doing so and the amount of their compensation. The celebrities, with the exception of Cortez Way and Mahone, have agreed to pay more than $400,000 in disgorgement, interest, and penalties to settle the charges without admitting or denying the SEC’s findings.

Allegations against Sun and his Companies

According to the SEC’s complaint, Sun and his companies offered and sold TRX and BTT as investments through multiple unregistered “bounty programs,” which 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. The complaint further alleges that Sun, BitTorrent Foundation, and Rainberry offered and sold BTT in unregistered monthly airdrops to investors, including 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 allegedly violated Section 5 of the Securities Act.

Sun has also been accused of violating 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. 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.

Celebrity Touting Allegations

The SEC simultaneously charged the following 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 and 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.

The SEC Complaint

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, alleges that Sun and his companies offered and sold TRX and BTT as investments through multiple unregistered “bounty programs,” which 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. The complaint further alleges that Sun, BitTorrent Foundation, and Rainberry offered and sold BTT in unregistered monthly airdrops to investors, including in the United States, who purchased and held TRX in Tron wallets or on participating crypto asset trading platforms. According to the complaint, each of these unregistered offers and sales violated Section 5 of the Securities Act.

The SEC’s Viewpoint

SEC Chair Gary Gensler stated that “this case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure”. He further added, “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.”

Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, said, “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.”

Read the Full Press Release


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Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | mja@sallahlaw.com | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.

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