The U.S. Securities and Exchange Commission sued Justin Sun Wednesday on allegations of selling and airdropping unregistered securities, fraud and market manipulation.
The SEC said in a press release it was suing Sun, the Tron Foundation, the BitTorrent Foundation and BitTorrent (now known as Rainberry) over the sale of tronix (TRX) and bitTorrent (BTT) tokens, which the regulator described as unregistered crypto asset securities. The regulator further alleged the defendants "fraudulently manipulat[ed]" TRX's secondary market through an "extensive wash trading" scheme.
Sun, who was named Grenada's ambassador to the World Trade Organization (WTO) last year, tried to artificially inflate TRX's trading volume through the wash trading scheme, the SEC alleged, by having his own employees "engage in more than 600,000 wash trades of TRX between two crypto asset trading platform accounts he controlled." According to the court filing, Sun's Tron Foundation employees conducted the trades, the BitTorrent and Tron foundations controlled the accounts and Rainberry employees transferred funds for the trading.
Tron's native token TRX fell 13% on the SEC charge. Other tokens related to Justin Sun, including Huobi (HT), Just (JST) and Sun Token (SUN) also fell more than 5% on Wednesday.
The agency is also suing Lindsay Lohan, Jake Paul, Soulja Boy, Lil Yachty, Ne-Yo, Akon and Michele Mason on illegal touting charges for their roles allegedly promoting TRX and BTT without disclosing they were paid to do so. The majority of these celebrities settled the charges.
According to the filing, while Sun said on social media that paid celebrities were required to disclose that they were being paid, "Sun himself arranged the payments to celebrities and knew those payments were not disclosed."
Somewhere between 4.5 million and 7.4 million TRX was traded daily through these wash trades, the agency said.
"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 said.
In a statement, SEC Chair Gary Gensler said the case was an example of the potential risks crypto investors may face with unregistered securities.
"As alleged, Sun and his companies not only targeted U.S. 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," he said. "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."
Read the full complaint below:
UPDATE (March 22, 2023, 19:50 UTC): Adds details from filing.
UPDATE (March 22, 2023, 20:15 UTC): Updated token declines.