Compiled by: Wu Talks about Blockchain
March 22, 2023 — The U.S. Securities and Exchange Commission today announced charges against crypto entrepreneur Justin Sun and his three wholly owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), for the unregistered offer and sale of the crypto asset securities Tronix (TRX) and BitTorrent (BTT). The SEC also charged Sun and his companies with fraudulently manipulating the secondary market for TRX through extensive wash trading, which involves simultaneous or nearly simultaneous purchases and sales of securities to make it appear that trading is active without actual changes in beneficial ownership, and with orchestrating a scheme to pay celebrities to peddle TRX and BTT without disclosing their compensation.
The SEC also charged the following eight celebrities with illegally peddling TRX and/or BTT without disclosing how much they were compensated for doing so.
Lindsay Lohan Jake Paul DeAndre Cortez Way (Soulja Boy) Austin Mahone Michele Mason (Kendra Lust) Miles Parks McCollum (Lil Yachty) Shaffer Smith (Ne-Yo) Aliaune Thiam (Akon)
The SEC's complaint, filed in the U.S. District Court for the Southern District of New York, alleges that Sun and his companies offered and sold TRX and BTT as investments through multiple unregistered "bounty programs" that directed interested parties to promote 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 allocations. The complaint further alleges that Sun, the BitTorrent Foundation, and Rainberry offered and sold BTT in an unregistered monthly airdrop to investors, including those in the United States, who purchased and held TRX on Tron wallets or participating crypto asset trading platforms. According to the complaint, these unregistered offers and sales violated Section 5 of the Securities Act.
The Commission also alleges that Sun orchestrated a scheme to artificially inflate secondary market TRX trading volume in violation of the antifraud and market manipulation provisions of the federal securities laws. From at least April 2018 through February 2019, Sun allegedly directed his employees to conduct more than 600,000 fake TRX trades between accounts on two crypto asset trading platforms that he controlled, with between 4.5 million and 7.4 million TRX fake trades per day. The scheme required a large supply of TRX, which Sun allegedly provided. Sun also allegedly sold TRX into the secondary market, reaping $31 million in proceeds from the illegal, unregistered token offering and sale.
“This case demonstrates once again the heightened risks investors face when crypto-asset securities are offered and sold without proper disclosure,” said SEC Chairman Gary Gensler. “As alleged, not only did Sun and his companies target U.S. investors in unregistered offers and sales, reaping millions in illicit gains at investors’ expense, but they also coordinated sham trades on unregistered trading platforms to create the misleading appearance of active trading. Sun further induced investors to buy TRX and BTT by orchestrating a promotion in which he and the celebrities concealed the fact that the tweets were paid for.”
“While we are neutral on controversial technologies, we are anything but neutral when it comes to investor protection,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As alleged in the complaint, Sun and others used an age-old playbook to mislead and harm investors by first offering securities without complying with registration and disclosure requirements and then manipulating the market for those securities. At the same time, Sun paid celebrities with millions of followers on social media to promote the unregistered offerings while specifically instructing them not to disclose their compensation. This is exactly the kind of conduct the federal securities laws are designed to prevent, regardless of the labels Sun and others used.”
With the exception of Cortez Way and Mahone, the celebrities charged today agreed to pay disgorgement, interest, and penalties totaling more than $400,000 to settle the charges, without admitting or denying the SEC’s findings.
The indictment also cited a large number of Twitter content from Justin Sun and related companies, such as the claim on Twitter in 2018 that American users can buy TRX; in 2019, Justin Sun retweeted "American users can use VPN to buy TRX"; and in 2018 instructed to add fake transactions on binance, bittrex, bithumb, and upbit.
Read the original press release:
https://www.sec.gov/news/press-release/2023-59
Read the original indictment:
https://downloads.coindesk.com/legal/justin.pdf
In addition, almost at the same time, Coinbase also disclosed that it had received the Wells Notice from the SEC.
Coinbase said: The SEC issued us a "Wells Notice" after a cursory investigation regarding an unspecified portion of our listed digital assets, our staking services Coinbase Earn, Coinbase Prime, and Coinbase Wallet. A Wells Notice is the SEC staff's way of telling a company that they recommend that the SEC take enforcement action for possible violations of securities laws. This is not a formal charge or lawsuit, but it could lead to one. Rest assured that Coinbase's products and services will continue to operate as usual - today's news does not require any changes to our current products or services.
Today’s Wells Notice does not provide a lot of information for us to respond to. The SEC staff told us that they had found potential violations of securities laws, but nothing more. We specifically asked the SEC to identify which assets on our platform they believed might be securities, but they declined to do so. The investigation is still in the very early stages. We have produced documents and provided two witnesses to testify, one regarding basic aspects of our staking service and the other regarding the basic operation of our trading platform.
Read the full article:
https://www.coinbase.com/blog/we-asked-the-sec-for-reasonable-crypto-rules-for-americans-we-got-legal
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