Eight Influencers Charged for Promotion of Digital Assets: Lindsey Lohan, Jake Paul, DeAndrew Cortez Way (Soulja Boy), Austin Mahone, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty) Shaffer Smith (Ne-Yo), Aliaune Thiam (Akon).
The Securities and Exchange Commission has posted another digital asset enforcement action, this time hitting prominent crypto entrepreneur Justin Sun as well as celebrity influencers that help to sell the alleged securities.
According to the SEC, Sun, as well as three of his companies, including Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), have been charged with the offer and sale of unregistered “crypto-asset securities.” These digital asset securities include Tronix (TRX) and BitTorrent (BTT).
The SEC has also charged Sun and his companies with fraudulently manipulating the secondary market for TRX through extensive wash trading, a method leveraged to boost perceived trading volume in crypto when the buyer and seller are, in effect, the same entity.
The eight celebrity promoters were charged for not disclosing they were compensated for their advocacy or the amount of their compensation.
Six of the influencers charged have settled with the SEC agreeing to pay a total of more than $400,000 in disgorgement, interest, and penalties without admitting or denying the SEC’s findings.
Cortez Way (Soulja Boy) and Austin Mahone have yet to settle.
Individually, the celebrity penalties were relatively small. Lohan, who promoted TRX on February 11, 2021, has to pay a civil penalty of $30,000 plus a disgorgement of $10,000 and interest of $670.
Jake Paul has to pay a disgorgement of $25,019, prejudgment interest of $1,811, and a civil money penalty in the amount of $75,057.
Filed in U.S. District Court for the Southern District of New York, the SEC 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 SEC’s complaint further alleges that Sun, BitTorrent Foundation, and Rainberry offered and sold BTT in” unregistered monthly airdrops to investors.”
The SEC also alleges that Sun violated the anti-fraud 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.
The complaint claims that 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 apparently required a significant supply of TRX, which Sun allegedly provided. Sun was also said to have sold TRX into the secondary market, generating proceeds of $31 million from illegal, unregistered offers and sales of the token.
SEC Chair Gary Gensler commented on the enforcement action:
“This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure. 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.”
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
“While we’re neutral about the technologies at issue, we’re anything but neutral when it comes to investor protection.”
Grewal added that allegedly Sun paid influencers to pump the offerings while telling them not to disclose their compensation.
The action taken by the SEC directed at Sun and his companies is one of the highest-profile enforcement actions by the SEC so far. Sun generated popular notoriety when he paid $4.57 million, in an auction, to have lunch with Warren Buffet.
The SEC continues to pursue alleged scofflaws regardless of their location, as long as it impacts US investors.
CI has not yet seen a public response by Sun or one of his companies.
— TRON DAO (@trondao) March 22, 2023