The SEC sued Justin Sun for illegal securities sales, fraud and market manipulation

The U.S. Securities and Exchange Commission (SEC) formally indicted Justin Sun, founder of TRON and member of Huobi's global advisory board, on March 22, local time, accusing him of illegal securities sales, fraud and market manipulation, and filed charges for separate violations by its crypto asset celebrity supporters.

On the same day, the SEC also issued a "Wells Notice" against cryptocurrency exchange Coinbase, warning the company that it may be in violation of U.S. securities laws.

Accused of artificially increasing trading volume through virtual trading

The SEC said in a press release that it is suing Justin Sun, the Tron Foundation, the BitTorrent Foundation and BitTorrent (now known as Rainberry) for selling tronix (TRX) and BitTorrent (BTT) tokens, describing them as unregistered crypto-asset securities, and further accusing Justin Sun of fraudulently manipulating TRX's secondary market.

Justin Sun, founder of Tron and member of Huobi's global advisory board.

According to the SEC, Sun tried to artificially increase TRX trading volume through a virtual trading (wash) program, allowing employees to make more than 600,000 TRX virtual transactions between two crypto asset trading platform accounts he controlled. Approximately 4.5 million to 7.4 million TRX are traded daily through these washes, all of which are provided by Justin Sun.

Securities and Exchange Chairman Gary Gensler said: "This case once again shows that investors are exposed to high risk when offering and selling crypto-asset securities without proper disclosure. ”

SEC filing against Justin Sun

In a statement, Kinsler said Sun allegedly lured investors into buying TRX and BTT tokens by "orchestrating a promotion in which he and his celebrity promoters concealed the fact that celebrities were paid through tweets."

The 8 celebrities or influencers are: actress Lindsay Lohan, social media celebrity Jake Paul, musician DeAndre Cortez Way (also known as Soulja Boy), musician Austin Mahone, actress Michele Mason (known as Kendra Lust), Musician Shaffer Smith (known as Ne-Yo) and musician Aliaune Thiam (aka Akon). All but Soulja Boy and Mahon agreed to jointly pay $400,000 in illegal gains, interest and fines to settle the charges. Reconciliation does not mean admitting or denying guilt.

These celebrity supporters promote TRX and BTT tokens on social media and recruit others to join Tron-related social media channels. Gurbir Grewal, the SEC's head of enforcement, said in a statement that the actions of Tron and its supporters were part of an "age-old playbook that misleads and hurts investors." Sun paid celebrities with millions of followers on social media to promote unregistered products, while specifically instructing them not to disclose compensation. That's exactly what federal securities laws are designed to prevent, regardless of the label Sun and others use. Gruval said.

Justin Sun's representative at TRON did not immediately respond to a request for comment.

The TRX fell 13 percent on the SEC's allegations. Other tokens associated with Justin Sun, including Huobi (HT), Just (JST) and Sun Token (SUN), also fell more than 5% on the 22nd.

The SEC ramped up enforcement of cryptocurrencies

On the same day, the SEC also issued a "Wells notice" against cryptocurrency exchange Coinbase. Wells notices are notices issued by regulators to inform individuals or companies that investigations that have been completed have uncovered a breach, and are usually one of the last steps before the SEC formally issues an allegation, generally laying out the framework for regulatory arguments and providing an opportunity for those likely to be charged to rebut the allegations.

The SEC has recently stepped up enforcement of the cryptocurrency industry, cracking down on companies and projects that "peddle unregistered securities." In mid-2022, reports of the SEC's investigation into Coinbase surfaced for the first time. Coinbase executives, including founder and CEO Brian Armstrong, have spoken out against the SEC's "excessive interference."

Paul Grewal, Coinbase's chief legal officer, said in a blog post: "While we will not take this state of affairs lightly, we are very confident in the way we conduct our business — the same business we filed with the SEC so that we can become a public company in 2021." ”

The company said its exchange's products will continue to operate as usual until any legal proceedings are resolved. "Based on discussions with employees, the Company believes that these potential enforcement actions will relate to various aspects of the Company's spot market, staking services Coinbase Earn, Coinbase Prime, and Coinbase Wallet." Coinbase said in a regulatory filing.

A few months before the November 2022 crash of cryptocurrency exchange FTX, the cryptocurrency market was volatile due to rising interest rates and widespread risk transfer, leading to the collapse of the stablecoin Terra and the bankruptcy of crypto hedge fund Three Arrows Capital, as well as exchanges Celsius and Voyager. Since the FTX crash, the SEC has been aggressively cracking down on the crypto industry. Under Kingsler's layout, the regulator has taken enforcement action against several heavyweights, including cryptocurrency exchanges Gemini, Genesis, Justin Sun, South Korean cryptocurrency tycoon Do Kwon, and exchange Kraken.