NEW YORK –
The US Securities and Exchange Commission charged Chinese cryptocurrency businessman Justin Sun with fraud on Wednesday and charged eight celebrities, including actress Lindsay Lohan and rapper Soulja Boy, with illegally promoting their crypto assets.
Sun and his companies Tron Foundation, BitTorrent Foundation and Rainberry were accused of planning since August 2017 to distribute billions of crypto assets known as Tronix (TRX) and BitTorrent (BTT) and artificially inflating trading volume.
He was also accused of concealing paying celebrities to promote TRX and BTT on social media accounts, misleading the public into thinking they had “an impartial interest in TRX and BTT, and were not simply paid spokespersons.”
The SEC said Sun’s activity generated tens of millions of US dollars in illegal profits at the expense of other investors.
“This case again demonstrates the high risk investors face when crypto asset securities are offered and sold without proper disclosure,” SEC Chairman Gary Gensler said in a statement.
Sun did not immediately respond to a Twitter request for comment. An attorney for him could not immediately be identified.
The other celebrities charged included singers Akon, Austin Mahone and Ne-Yo, social media personality and boxer Jake Paul, rapper Lil Yachty and porn actress Kendra Lust.
All but Soulja Boy and Mahone agreed to settle, without admitting wrongdoing, and together they paid more than US$400,000.
Andrew Brettler, Lohan’s attorney, said the actress was unaware of the disclosure requirements until last March.
“From the beginning, she was cooperative with the SEC investigation and ultimately agreed to return the small amount of money she received and paid a penalty to resolve this matter,” her attorney Andrew Brettler said in an emailed statement.
An attorney for Kendra Lust declined to comment. Lawyers for the other celebrities did not immediately respond to requests for comment.
The SEC has been stepping up efforts to crack down on the crypto industry, which Gensler has called a “Wild West” rife with misconduct. His efforts accelerated after the November crash of the Sam Bankman-Fried cryptocurrency exchange FTX.
In its lawsuit filed in federal court in Manhattan, the SEC said Sun sold TRX and BTT as securities and therefore their sale had to be registered with the agency.
He said that Sun inflated the apparent trading volume in TRX through extensive “wash trading,” which involves simultaneous or near-simultaneous buying and selling without an actual change in ownership.
From at least April 2018 to February 2019, Sun directed employees to conduct hundreds of thousands of wash trades between two accounts it controlled, the SEC said.
By creating a false and deceptive appearance of legitimate trading, Sun facilitated the sale of TRX while keeping prices stable and generated $31 million in profit from unregistered and illegal offers and sales of TRX, the SEC said.
(Reporting by Chris Prentice and Jonathan Stempel in New York; editing by Lisa Shumaker and Lincoln Feast)