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The US Securities and Exchange Commission (SEC) has recently announced that it has charged Justin Sun, a prominent crypto entrepreneur, and his three companies- Tron Foundation, BitTorrent, and Rainberry Inc, with allegedly conducting an unregistered sale of “crypto assets securities.”
The SEC alleges that Sun and his companies offered and sold Tronix (TRX) and BitTorrent (BTT) tokens to the public without registering these tokens as securities, following the regulatory agency’s crackdown on the crypto industry.
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In addition to the charges of unregistered offering and sale of crypto asset “securities” TRX and BTT, the SEC has also accused Justin Sun and his companies of alleged fraudulent activities related to TRX.
The SEC alleges that Sun and his companies engaged in extensive wash trading to “fraudulently manipulate” the secondary market for TRX. These allegations of wash trading involve the simultaneous buying and selling of the same crypto asset to make it appear that there is more trading activity than there is.
The regulatory agency has also accused Sun and his companies of incentivizing celebrities to promote TRX and BTT without disclosing their compensation.
The celebrities named in the charges are 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).
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The SEC’s complaint alleges that Sun and his companies offered and sold TRX and BTT tokens as investments through multiple unregistered “bounty programs.” These programs allegedly directed interested parties to promote the tokens on social media, recruit others to its Tron-affiliated Telegram and Discord channel, and create BitTorrent accounts in exchange for TRX and BTT distributions.
The SEC alleges that these bounty programs did not provide investors with accurate and complete information and did without disclosing the risks associated with these investments. Additionally, Sun is charged with violating anti-fraud and market manipulation provisions of the federal securities law by allegedly orchestrating a scheme to “artificially” inflate the apparent trading volume of Tronix.
The SEC alleges that from April 2018 to February 2019, Sun directed his employees to engage in over 600,000 wash trades of TRX between two crypto assets trading platforms accounts he controlled, with between $4 million and $7 million TRX wash traded daily. The SEC Chair Gary Gensler stated:
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
According to the SEC, all celebrities except DeAndre Cortez Way (Soulja Boy) and Austin Mahone agreed to settle the charges by paying more than $4,000,000 in disgorgement, interest, and penalties after the charges were filed.
Featured image from Unsplash, chart from TradingView.com