BEIJING, March 23 (TMTPOST) – The U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Justin Sun and three of his companies on Wednesday, for the unregistered offer and sale of Tronix (TRX) and BitTorrent (BTT). Sun and his companies also fraudulently manipulated the secondary market for TRX through extensive wash trading to forge the impression of active trading, according to the allegation.
The SEC, which also alleged that Sun paid influential celebrities to promote TRX and BTT, has charged eight entertainment stars with millions of followers on Twitter, including Lindsey Lohan, Jake Paul, and Soulja Boy. These celebrities exploited their influence to promote Sun’s tokens on Twitter, while concealing the fact that they were actually paid to advertise for Sun. Investors were thus deceived into thinking that the stars were genuinely endorsing the value of TRX and BTT. Except for Cortez Way and Mahone, the accused celebrities have agreed to pay over $400,000 to settle the SEC charges, which include ill-gotten gains, interest, and penalties.
The SEC’s lawsuit, filed in the U.S. District Court for the Southern District of New York, alleged that Sun and his companies offered and sold tokens, TRX and BTT, as investments through multiple “bounty programs” that were not registered with the SEC. They also instructed related parties to promote the tokens on social media, join and recruit others to join Tron’s Telegram and Discord channels, and created BitTorrent accounts in exchange for TRX and BTT distributions. The indictment further alleged that Sun, the BitTorrent Foundation, and Rainberry offered and sold BTT in unregistered monthly airdrops to investors, including those in the U.S., who purchased and held TRX in Tron wallets or on crypto asset trading platforms. These unregistered offers and sales violated Section 5 of the U.S. federal Securities Act.
The SEC has also accused Sun of violating the antifraud and market manipulation provisions of the federal securities laws by faking TRX’s trading volumes in the secondary market. From at least April 2018 to February 2019, Sun allegedly directed his subordinates to make more than 600,000 wash trades of TRX between two crypto asset trading platform accounts he controlled, trading between 4.5 million and 7.4 million TRX per day. This operation required a large supply of TRX, which was allegedly provided by Sun. He also allegedly sold TRX into the secondary market, generating $31 million in proceeds from illegal, unregistered token offerings and sales.
“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. “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.”