The Securities and Exchange Commission (SEC) announced Wednesday that Tron founder Justin Sun and his companies violated securities laws, accusing him of market manipulation, fraud, and airdropping unregistered securities to investors.
In addition to Sun himself, the financial watchdog said it was suing the Tron Foundation, BitTorrent, and Rainberry—three companies owned by Sun. The lawsuit claims that cryptocurrencies Tronix (TRX) and BitTorrent (BTT) are unregistered securities and that Sun manipulated them on the secondary market, as did his companies.
“Sun violated 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,” the SEC claimed in a press release.
The alleged market manipulation took place between April 2018 and February 2019, when Sun directed his employees to conduct at least 600,000 TRX wash trades between two exchanges he owned, the lawsuit claims. The agency alleged that Sun walked away with illicit gains totaling $31 million from sales of the token.
TRX toppled following the SEC’s announcement, falling 11% in just over 30 minutes to $0.059 from $0.067, according to CoinGecko, which listed the token as the 17th largest cryptocurrency by market capitalization. The price of BTT also wavered, down 1.2% over the past day.
At the same time, the SEC announced it was charging a litany of celebrities for not disclosing they were paid to promote the Tronix and BitTorrent tokens. The celebrities included social media influencer Jake Paul, actress Lindsay Lohan, and pornography actress Michelle "Kendra Lust" Mason.
Musicians DeAndre "Soulja Boy" Way, Miles "Lil Yachty" McCollum, Aliaune "Akon" Thiam, Shaffer "Ne-Yo" Smith, and Austin Mahone were also charged. Aside from Soulja Boy and Austin Mahone, the SEC said that the celebrities each agreed to pay more than $400,000 to settle their charges, without admitting to or denying them.
Similar action was taken against influencer and reality TV star Kim Kardashian and boxer Floyd Mayweather last October over their promotion of EthereumMax. Kardashian agreed to pay $1.26 million in penalties to settle the charges.
That same day, SEC Chairman Gary Gensler posted a video to Twitter warning celebrities not to engage in promoting digital assets without the proper disclosures, explaining why it’s harmful to investors.
Today @SECGov, we charged Kim Kardashian for unlawfully touting a crypto security.
This case is a reminder that, when celebrities / influencers endorse investment opps, including crypto asset securities, it doesn’t mean those investment products are right for all investors.
— Gary Gensler (@GaryGensler) October 3, 2022
The Director of the SEC’s Division of Enforcement Gurbir Grewal reaffirmed his agency’s position Wednesday, claiming that Sun explicitly told celebrities not to mention he was paying them to endorse tokens.
“Sun paid celebrities with millions of social media followers to tout the unregistered offerings, while specifically directing that they not disclose their compensation,” he said. “This is the very conduct that the federal securities laws were designed to protect against regardless of the labels Sun and others used.”
Editor's note: This story was updated after publication with additional details.