SEC Charges Justin Sun, Lindsay Lohan and Other Celebrities in Crypto Scheme By Janet H. Cho and Joe Light March 22, 2023 5:15 pm ET The SEC charged celebrities including Lindsay Lohan for touting crypto without telling fans and followers that they were being paid to do so or how much. Jamie McCarthy/Getty Images Text size The Securities and Exchange Commission on Wednesday charged crypto asset entrepreneur Justin Sun and three of his companies with the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT). The SEC also charged Sun and his companies for paying eight celebrities and social media influencers to tout TRX and BTT without telling their fans and followers that they were being paid to do soand how much they were being compensated, as required. The celebrities are Lindsay Lohan, Jake Paul, DeAndre “Soulja Boy” Cortez Way, Austin Mahone, Michele “Kendra Lust” Mason, Miles “Lil Yachty” Parks McCollum, Shaffer “Ne-Yo” Smith, and Aliaune “Akon” Thiam. The celebrities except for Cortez Way and Mahone collectively agreed to pay more than $400,000 in disgorgement, interest, and penalties to settle the charges, without admitting or denying the SEC’s findings. This isn’t the first time the SEC has initiated actions against celebrities for promoting crypto tokens without disclosing that they were compensated or how much they were being paid. It sued Kim Kardashian in October 2022 and former NBA player Paul Pierce in February. The SEC’s 50-page complaint, filed in U.S. District Court for the Southern District of New York, accuses Sun and his companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), of offering and selling TRX and BTT as investments through multiple unregistered “bounty programs.” The bounty programs directed people 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 said Sun and his companies fraudulently manipulated the secondary market for TRX through extensive “wash trading,” by simultaneously or near-simultaneously buying and selling a security to make it appear actively traded without an actual change in beneficial ownership, and for orchestrating the scheme to pay celebrities to tout TRX and BTT without disclosing that they were being compensated. READ MORE Coinbase Warned Biden’s Thumbs-Down Nvidia vs. Bitcoin As part of the lawsuit, the SEC alleges that TRX and BTT are “crypto asset securities.” Most crypto issuers dispute that their tokens are securities and say they aren’t subject to SEC jurisdiction. If a court found that TRX and tokens like it were securities, it could have wide implications for U.S.-based crypto trading platforms that allowed customers to buy and sell them, since those platforms could also be forced to register with the agency and fall under its oversight. The complaint alleges that Sun and his companies offered and sold BTT in unregistered monthly airdrops to investors, including in the U.S., who bought and held TRX in Tron wallets or on participating crypto asset trading platforms. Each of those unregistered offers and sales violated Section 5 of the Securities Act, the SEC said. “This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure,” SEC Chair Gary Gensler said in a statement. Sun and others mislead and harmed investors “by first offering securities without complying with registration and disclosure requirements and then manipulating the market for those very securities,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. “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.” A Tron representative wasn’t immediately available to comment. Write to Janet H. Cho at janet.cho@dowjones.com
The SEC is getting quite active in the crypto sector. Coinbase warned by SEC of potential securities charges https://www.cnbc.com/2023/03/22/coinbase-warned-by-sec-of-potential-securities-charges.html The SEC issued crypto exchange Coinbase a Wells notice, warning the exchange that it identified potential violations of U.S. securities law. Coinbase said the warning wouldn’t mean any changes to the exchange’s current products or services. The notice is the second warning from the SEC to a crypto entity after a February notice to stablecoin issuer Paxos. (More at above url)