The U.S. Securities and Exchange Commission (SEC) announced on Wednesday that Tron founder Justin Sun and his company violated securities laws, charging him with market manipulation, fraud and airdropping unregistered securities to investors.
In addition to Sun himself, the financial regulator said it was suing the Tron Foundation, BitTorrent and Rainberry, three companies owned by Sun. The suit alleges that the cryptocurrencies Tronix (TRX) and BitTorrent (BTT) are unregistered securities and that Sun, like his firm, manipulated them on the secondary market. “Justin Sun orchestrated a scheme to artificially inflate the apparent trading volume of TRX in the secondary market in violation of the antifraud and market manipulation provisions of the federal securities laws,” the SEC said in a 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 suit alleges. Sun made a total of $31 million in illicit proceeds from the sale of the token, the agency said.
TRX plummeted after the SEC announcement, falling 11 percent from $0.067 to $0.059 in just over 30 minutes, according to CoinGecko, with the token ranking as the 17th-largest cryptocurrency by market capitalization. The price of BTT is also volatile, down 1.2% over the past day.
Meanwhile, the SEC has announced that it will charge a string of celebrities for failing to disclose that they were paid to promote Tronix and BitTorrent tokens. These celebrities include social media influencer Jake Paul, actress Lindsay Lohan and porn 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. With the exception of Soulja Boy and Austin Mahone, the celebrities all agreed to pay more than $400,000 to settle their charges, neither admitting nor denying them, the SEC said.
Similar action was taken against influential reality TV star Kim Kardashian and boxer Floyd Mayweather last October for their promotion of EthereumMax. Kardashian agreed to pay a $1.26 million fine to settle the charges.
That same day, SEC Chairman Gary Gensler posted a video on Twitter warning celebrities against getting involved in promoting digital assets without proper disclosure and explaining why this is harmful to investors. Gurbir Grewal, director of the SEC's Division of Enforcement, reiterated the agency's position on Wednesday, claiming that Sun explicitly told celebrities not to mention that he paid them for endorsements.
"Sun paid celebrities with millions of social media followers to peddle unregistered products while specifically instructing them not to disclose their compensation," he said. "That's exactly what the federal securities laws are designed to prevent, regardless of the labels Sun and others use."
