Tron founder Justin Sun, 8 celebrities hit with market manipulation and illegal securities charges

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U.S. regulators continue down the warpath against digital assets it regards as illegal securities and their founders. The latest targets for the Securities and Exchange Commission (SEC) are entrepreneur Justin Sun, founder of the Tron (TRX) network, and eight celebrities the SEC says were paid to promote assets without disclosing their compensation.

The SEC charged Sun with the unregistered offer and sale of “crypto asset securities” Tronix (TRX) and BitTorrent (BTT), as well as “fraudulently manipulating the secondary market for TRX through extensive wash trading” (i.e., fake buy/sell orders that make it appear actively traded, without change in beneficial ownership). The charge list also included Sun’s companies Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent). Sun purchased the company that produces the popular filesharing software BitTorrent for US$140 million in June 2018.

Sun, born in China and once mentored by Alibaba’s Jack Ma, is well-known for using high-profile marketing techniques such as expensive stunts and celebrity glamor to grab attention. The eight celebrities allegedly paid to promote TRX and BTT without disclosure are Lindsay Lohan, Jake Paul, Soulja Boy (DeAndre Cortez), Austin Mahone, Kendra Lust (Michele Mason), Lil Yachty (Miles Marks McCollum), Ne-Yo (Shaffer Smith), and Akon (Aliaune Thiam).

The SEC said that six of the eight celebrities named above had agreed to pay a total of US$400,000 in disgorgement, interest, and penalties to settle the charges.

The market price for Tron (TRX), CoinGecko’s 17th-ranked asset by market cap, dropped by over 9% earlier today. The drop echoed in almost every other digital asset. However, TRX and Ripple’s XRP (-7.3%) were among the highest-percentage falls. Only Litecoin (LTC) bucked the overall trend, with an 8.1% rise at the same time.

An already-famous entrepreneur featured on several up-and-comer lists over the past decade, Sun launched Tron (then TRN) with an initial coin offering in September 2017, at the height of the ICO craze peak. Just days after its launch, the Chinese government placed a total ban on ICOs fearing a crash could have a disastrous effect on local investors, who had poured money into new tokens. Reports suggested Sun had rushed the Tron ICO to get ahead of the ban, and he moved to the United States soon after it occurred.

At press time, Sun had not responded to the SEC charges on Twitter, where he has maintained a regular posting schedule for years. He had touted the Tron network (also known as TRON DAO) as an alternative to Ethereum for the Tether (USDT) asset, this week announcing USDT circulation on Tron had reached US$43.1 billion.

A new record high for #TRC20–#USDT! With a 43.1B circulating supply, #TRC20–#USDT now holds the top spot among #stablecoins.🔥#TRC20–#USDT serves as a crucial gateway for people to access blockchain technology and will continue to reshape and enhance daily life worldwide.🙌 https://t.co/JwDieLLbF9

— H.E. Justin Sun🌞(hiring) (@justinsuntron) March 22, 2023

Sun was also known for participating in high-profile auctions, sometimes paying large amounts for winning bids before declining the prize. He paid US$4.6 million for a private meal with Warren Buffet in 2019 before canceling, and in 2021 claimed he’d made the winning $28 million bid to be the first passenger on Blue Origin’s New Shepard spaceflight—before backing out due to “scheduling conflicts.” For the record, Sun did eventually pay for the bids.

In December 2021, Sun announced he would step down as CEO of the Tron Foundation and join the government of Grenada, becoming its full-time ambassador to the World Trade Organization (WTO). He has since used the title “H.E. Justin Sun” (His Excellency) as his Twitter name.

Thank you CZ! The sky is blue and water crisp on this blessed land 🤩On behalf of Grenada🇬🇩 – I extend the warmest invitation to you and your friends to join me for an amazing experience in this paradise and East Caribbean! 🇬🇩 https://t.co/QZZSjILxPN

— H.E. Justin Sun🌞(hiring) (@justinsuntron) December 17, 2021

Sun’s Wikipedia page warns that it “may have been created or edited in return for undisclosed payments.” His hype-generating public behavior has simultaneously irked and delighted the Tron user community, variously claiming they either helped or hindered TRX’s market cap.

What actually drove TRX and BTT prices was “wash trading,” according to the SEC’s complaint—Sun and his employees had manipulated prices for those assets with 4.5-7.4 million tokens used in 600,000 fake trades between April 2018 and February 2019 between exchange platforms Sun controlled. It added that Sun gained US$31 million from sales of TRX onto secondary markets, which it called “illegal, unregistered offers and sales.”

Director of the SEC’s Enforcement Division, Gurbir S. Grewal, said:

“As alleged in the complaint, Sun and others used an age-old playbook to mislead and harm investors by first offering securities without complying with registration and disclosure requirements and then manipulating the market for those very securities. At the same time, Sun paid celebrities with millions of social media followers to tout the unregistered offerings, while specifically directing that they not disclose their compensation. This is the very conduct that the federal securities laws were designed to protect against regardless of the labels Sun and others used.”

Watch: Law & Order Regulatory Compliance for Blockchain & Digital Assets