Justin Sun and Other Celebrity Charged with Fraud by SEC, Exposing Potential Pitfalls for Crypto Investors
The Securities and Exchange Commission (SEC) has charged crypto entrepreneur Justin Sun and eight celebrities for fraudulently promoting and selling unregistered cryptocurrency securities. The news of the lawsuit has had a significant impact on the price of TRX, with the token’s value plunging by 6.1% following the announcement.
Unregistered Sale of Crypto Asset Securities
The SEC has charged Sun and three of his companies for the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT). The complaint alleges that Sun and his companies offered and sold TRX and BTT through multiple unregistered “bounty programs” and monthly airdrops, which directed interested parties to promote the tokens on social media and create BitTorrent accounts in exchange for TRX and BTT distributions.
Manipulating the Secondary Market
The SEC also charged Sun for fraudulently manipulating the secondary market for TRX through extensive wash trading. 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.
Paying Celebrities to Tout TRX and BTT
The SEC also charged Sun and his companies for orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation. The celebrities charged include 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). Sun allegedly induced investors to purchase TRX and BTT by coordinating a promotional campaign in which he and his celebrity promoters hid the fact that the celebrities were paid for their tweets.
With the exception of two celebrities, the charged celebrities 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.
Investors Beware: High Risk of Unregistered Crypto Asset Securities
The charges against Sun and his affiliated companies serve as a warning to investors about the potential risks associated with unregistered crypto asset securities. Sun and his companies targeted US investors in their unregistered offers and sales, generating millions in illegal proceeds at the expense of investors. The SEC’s findings also reveal that Sun coordinated wash trading to create a misleading appearance of active trading in TRX and induced investors to purchase TRX and BTT by concealing celebrity endorsements.
In conclusion, investors should exercise caution and do their due diligence when investing in crypto asset securities, particularly those that are unregistered.