SEC Charges Lindsay Lohan, Other Celebrities With Crypto Violations
The Securities and Exchange Commission on Wednesday announced charges against entrepreneur Justin Sun over the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT), while also bringing charges against actress Lindsay Lohan and seven other celebrities for illegally promoting investments in these crypto tokens without disclosing that they were being compensated for doing so and how much they were being paid for their endorsements.
The other celebrities were Jake Paul, DeAndre Cortez Way (Soulja Boy), Austin Mahone, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty), Shaffer Smith (Ne-Yo) and Aliaune Thiam (Akon).
In addition, the SEC charged Sun and and three of his wholly owned companies with fraudulently manipulating the secondary market for TRX via extensive “wash trading,” which involves the simultaneous, or near-simultaneous, purchase and sale of a security to make it appear actively traded without an actual change in beneficial ownership
The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, alleged that Sun and his companies offered and sold TRX and BTT as investments via various unregistered “bounty programs” that directed interested parties to promote the 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 distributions.
The complaint further alleged that Sun, BitTorrent Foundation and Rainberry offered and sold BTT in unregistered monthly airdrops to investors, including in the U.S., who bought and held TRX in Tron wallets or on participating crypto asset trading platforms.
Each of those unregistered offers and sales violated Section 5 of the Securities Act, according to the SEC.
In addition, the SEC alleged that Sun violated the antifraud and market manipulation provisions of the federal securities laws by orchestrating a scheme to artificially inflate the apparent trading volume of TRX in the secondary market. Sun generated proceeds of $31 million from that through illegal, unregistered offers and sales of the token, according to the complaint.
“This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure,” according to SEC Chair Gary Gensler.
From at least April 2018 through February 2019, Sun allegedly directed his employees to engage in over 600,000 wash trades of TRX between two crypto asset trading platform accounts he controlled, with between 4.5 million and 7.4 million TRX wash traded each day, according to the complaint.
The scheme required a significant supply of TRX, which Sun allegedly provided.
“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,” Gensler explained in a statement.
Except for Cortez Way and Mahone, the celebrities charged agreed to pay a total of over $400,000 in disgorgement, interest and penalties to settle the charges, without admitting or denying the SEC’s findings, it said.
Pictured: Actress Lindsay Lohan attends the 19th Annual White House Correspondents’ Garden Brunch in Washington, D.C. (Photo: Bloomberg)