The SEC said three of Sun's wholly-owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), engaged in the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT).
"The SEC also charged Sun and his companies with fraudulently manipulating the secondary market for TRX through 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, and for orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation," the agency further said in a release. (Related: Remember when now-collapsed Alameda was caught front-running crypto trades against customers and cheating them out of profits?)
The SEC is also going after a number of celebrities and online "influencers" who illegally promoted TRX and/or BTT without disclosing to their followers that they were being compensated to do so. The following also failed to disclose just how much compensation they were receiving, which is another legal requirement:
Along with Sun, all of these pop culture icons are named in the SEC's complaint, which was filed in the U.S. District Court for the Southern District of New York. The complaint pegged the scam as offering unregistered "bounty programs" to interested parties to promote on social media, encouraging them to join and recruit others to Tron-affiliated Telegram and Discord channels, as well as create BitTorrent accounts in exchange for TRX and BTT distributions.
"The complaint further alleges that Sun, BitTorrent Foundation, and Rainberry offered and sold BTT in unregistered monthly airdrops to investors, including in the United States, who purchased and held TRX in Tron wallets or on participating crypto asset trading platforms," the complaint stated. "According to the complaint, each of these unregistered offers and sales violated Section 5 of the Securities Act."
The SEC also alleged that Sun violated the antifraud and market manipulation provisions of federal securities laws by orchestrating a scheme to artificially inflate the apparent trading volume of TRX in the secondary market. Between April 2018 and February 2019, Sun allegedly ordered his employees to engage in more than 600,000 wash trades of TRX between two crypto asset trading platform accounts, both of which he controlled.
In that scheme, between 4.5 million and 7.4 million TRX wash trades occurred, requiring high amounts of TRX that Sun allegedly provided. Sun also allegedly sold TRX into the secondary market, generating proceeds of $31 million from illegal and unregistered offers and sales of the token.
"This case demonstrates again the high-risk investors face when crypto asset securities are offered and sold without proper disclosure," said SEC Chair Gary Gensler.
"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."
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