The Securities and Exchange Commission on Wednesday accused Chinese cryptocurrency trader Justin Sun of fraud and accused eight celebrities, including actress Lindsay Lohan and rapper Soulja Boy, of illegally promoting his crypto assets.
Sun and its firms Tron Foundation, BitTorrent Foundation and Rainberry have been accused of planning to distribute billions of crypto assets referred to as Tronix (TRX) and BitTorrent (BTT) since August 2017 and artificially inflating trading volumes.
He was also accused of concealing payments to celebrities to advertise TRX and BTT on social media accounts, misleading the general public into pondering they’d an “impartial interest in TRX and BTT and were not only paid spokespeople.”
the SEC said Sun’s activities have generated illicit profits of tens of hundreds of thousands of dollars on the expense of other investors.
“This case again demonstrates the risks investors face when securities with crypto assets are offered and sold without proper disclosure,” SEC chairman Gary Gensler said in an announcement.
Sun didn’t immediately reply to a request for comment via Twitter. The lawyer for him was not immediately identifiable.
Other celebrities accused 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 a plea bargain, and together they paid over $400,000.
Andrew Brettler, Lohan’s lawyer, said the actress was unaware of the disclosure requirements until last March.
“She cooperated with the SEC investigation from the start and eventually agreed to withdraw the small amount of cash she received and paid the positive to resolve the matter,” her attorney Andrew Brettler said in an emailed statement.
Kendra Lust’s lawyer declined to comment. Lawyers for other celebrities didn’t immediately reply to requests for comment.
The SEC is stepping up efforts to crack down on the crypto industry, which Gensler has called the “Wild West” filled with abuses. His efforts gained momentum after the November collapse of Sam Bankman-Fried’s FTX cryptocurrency exchange.
In a criticism filed in federal court in Manhattan, the SEC said Sun was selling TRX and BTT as securities, and due to this fact their sale needed to be registered with the agency.
Sun was found to have inflated the apparent trading volume of TRX through extensive “wash trading”, involving simultaneous or near-simultaneous purchases and sales with no actual change of ownership.
From not less than April 2018 to February 2019, Sun ordered employees to conduct a whole lot of 1000’s of exchange transactions between two accounts it controlled, the SEC said.
By making a false and misleading appearance of legitimate trading, Sun facilitated the sale of TRX while maintaining stable prices and generated $31 million in proceeds from illegal, unregistered TRX listings and sales, the SEC said.