Gary Gensler noted that the case indicates the high risks investors face when there is no proper disclosure before the offering of crypto asset securities.
The US Securities and Exchange Commission (SEC) has accused Tron founder Justin Sun of crypto violations, including selling and airdropping unregistered securities. The financial regulator also unveiled fraud and market manipulation charges against the Chinese-born Grenadian crypto entrepreneur.
SEC Accuses Justin Sun of Market Manipulations
The SEC is suing Justin Sun, the BitTorrent Foundation, the Tron Foundation, and BitTorrent (now Rainberry) over the same two tokens. According to the financial watchdog, the unregistered crypto asset securities are Tronix (TRX) and BitTorrent (BTT). The Commission explained that the defendants fraudulently manipulated TRX’s secondary market via an “extensive wash trading” scheme. Per the SEC, Justin Sun manipulated the trading activity of TRX and BTT by faking active trading. The businessman attempted to artificially pump TRX’s trading volume through the alleged wash trading scheme. In the court filing, the SEC detailed that Justin Sun made his employees conduct more than 600,000 wash trades of the TRX token. The regulator added that between 4.5 million and 7.4 million TRX was traded on a daily basis via these wash trades.
“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,” the SEC stated.
The federal agency said the Tron founder made the transactions happen between two trading platforms he controlled. While Tron Foundation’s workers allegedly engaged in the trades, Tron foundation and BitTorrent controlled the trading platform accounts, and Rainberry staff moved funds for the activity.
Celebs Involved in Sun’s Allegations
Gary Gensler, SEC Chair, noted that the case indicates the high risks investors face when there is no proper disclosure before the offering of crypto asset securities. There are also allegations against Tronix and BitTorrent celebrity backers. They include Jake Paul, Austin Mahone, Soulja Boy, Ne-Yo, and American actress Lindsay Lohan. Others are Musicians Lil Yachty, Kendra Lust, and famous musician Akon. The court filing explains that the Sun paid the celebrities and was aware they did not disclose the payment. SEC enforcement chief Gurbir Grewal said Justin Sun paid stars with millions of social media followers to promote the unregistered offerings. Gensler also commented on the “coordinated wash trading,” saying:
“As alleged, Sun and his companies not only targeted US 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.”
The price of TRX plunged over 6% upon news of the SEC’s charges.