SEC indicts Crypto boss and multiple celebrities over wash trades


Alex Sharp, Contributor

In recent years, cryptocurrency has become a popular investment option for people from all walks of life, including but not limited to teenagers, adults, and celebrities. With the rise of digital assets and blockchain technology, many celebrities have found success investing in, and promoting different cryptocurrencies. However, the Securities and Exchange Commission (SEC) has recently started to crack down on cryptocurrencies, issuing warnings and fines to those who fail to comply with regulations.

The SEC requires companies and individuals who are offering investments to register with the agency or qualify for an exemption. This includes celebrities who are promoting cryptocurrency investments on social media or other platforms. The SEC has been taking a closer look at these promotions, particularly those that may be seen as misleading or deceptive to potential investors.

One notable case involves boxer Floyd Mayweather and music producer DJ Khaled, who were fined by the SEC in 2018 for promoting an initial coin offering (ICO) for a cryptocurrency called Centra. The SEC found that the two celebrities failed to disclose that they were being paid to promote the ICO, and that their endorsements may have misled investors into believing that the cryptocurrency was a sound investment.

More recently, the SEC has been scrutinizing social media posts by celebrities promoting cryptocurrencies, particularly non-fungible tokens (NFTs). NFTs are digital assets that are unique and cannot be replicated, and they have become increasingly popular in the art and entertainment world. However, the SEC has warned that some NFTs may be considered securities, which would require them to be registered with the agency or qualify for an exemption.

On March 22, 2023, the SEC announced charges against crypto asset entrepreneur Justin Sun and three of his wholly-owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. for the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT). This is big news, as the SEC simultaneously charged multiple celebrities for illegally touting TRX and/or BTT without disclosing that they were compensated for doing so. This list includes names like Lindsay Lohan, Soulja Boy, Jake Paul, Lil Yachty, and Akon, to name a few. 

The SEC’s complaint alleges that TRX and BTT were sold as investments through what the SEC is calling “bounty programs,” which had interested consumers promote the tokens on social media and then recruit others to Tron-affiliated Telegram and Discord channels, in turn creating BitTorrent accounts in exchange for TRX and BTT. The complaint further alleges that Sun, BitTorrent Foundation, and Rainberry offered and sold BTT in unregistered monthly airdrops to investors who purchased and held TRX in Tron wallets or on other crypto holding platforms (Coinbase, Blockchain, etc). According to the complaint, each of these unregistered offers and sales violated Section 5 of the Securities Act.

The SEC has also stated that Sun violated the antifraud and market manipulation provisions of the federal securities laws by managing an operation to artificially inflate the value of TRX. From at least April 2018 through February 2019, Sun allegedly directed his employees to sell and purchase TRX between two crypto asset trading platform accounts he controlled. This is called “wash trading” and is a form of market manipulation. The SEC states that between 4.5 million and 7.4 million TRX was wash traded daily. The operation required a significant supply of TRX, which Sun allegedly provided. The SEC has stated that Sun made $31 million dollars from this illegal activity. 

This case paired with the volatility that the crypto market has seen over the past year demonstrates the risk that someone takes on when investing in crypto. SEC Chair Gary Gensler spoke on the misleading practices of crypto companies, as he said this: “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. 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.” These companies are utilizing celebrities that many people trust to reel in uneducated crypto buyers and make money off of market manipulation.

The bottom line of this story is – always do your research before investing in crypto. The market is still unregulated, and while that can be a plus, it opens the door for shady activity as can be seen here. Also, take celebrity endorsements with a grain of salt, especially when dealing with crypto. Rug-pulling schemes have become increasingly popular with big names to make a big buck, and you don’t want to be on the wrong side of the computer screen in that regard.