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SEC takes aim at crypto influencers who promote scams and manipulate prices

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(Kitco News) - Crypto influencers are the latest cohort to be targeted with enforcement actions from the U.S. Securities and Exchange Commission (SEC), as the regulator is looking to bring charges against influencers who have promoted scam projects and are found to be manipulating the prices of certain tokens via social media.

Former SEC chief John Reed Stark utilized his Twitter page to warn crypto influencers of their impending prosecution, calling out those who harness social media to promote dubious crypto projects to help manipulate their prices during bull runs in the market.

“Attention all crypto promoters who use social media to manipulate the price of crypto-securities: Fail not at your peril,” Stark wrote. “Not only will you eventually get caught, but your prosecution will also be like shooting fish in a barrel.”

And it's not just cryptocurrency promoters who have been put on notice, as Stark warned traders in all markets that the SEC is keeping a close eye on their actions. “Whether manipulating the price of exchange listed-securities, microcap-securities, penny stock-securities or crypto-securities, the same anti-fraud rules apply. So get smart crypto-shills, because your days are numbered.”

Stark went on to highlight the particularly “brazen and arrogant” way that many crypto promoters “grift their victims,” doing it in plain view on platforms like Twitter, Discord, Instagram and Reddit. “The fraud is always easy to find, easy to archive and easy to present to a judge or jury,” he said.

“That's the thing about investigating securities fraud, the perpetrators want to be found; they need to surface to convince their victims to buy into their deception,” Stark added. “In other words, for SEC enforcement lawyers and FBI agents, bringing crypto promoters to justice is not like trying to identify and apprehend stealth hackers who are attempting to tamper with the energy grid.”

Rather than needing to conduct lengthy investigations that require extensive travel, regulators and law enforcement only need to turn on their computers to find a clear evidence trail “of compelling and vivid inculpatory evidence,” he noted. “Indeed, far from tying government's hands, social media has become the virtual rope that many crypto bros (and sisters) use to hang themselves.”

Stark provided the example of Francis Sabo, who was charged in a $100 million securities fraud scheme that utilized social media platforms to manipulate exchange-traded stocks. Sabo ran the Atlas Trading forum on Discord, which purported to provide educational content about trading and securities markets.

The SEC has alleged that Sabo purchased certain stocks and then encouraged his large social media following to buy those selected stocks by posting price targets or indicating he was buying, holding, or adding to his stock positions.

“However, as the complaint alleges, when share prices and/or trading volumes rose in the promoted securities, Sabo regularly sold his shares without ever having disclosed his plans to dump the securities while he was promoting them,” Stark said. The SEC reports that between January 2020 and December 2022, Sabo made over $1 million from his participation in the stock manipulation scheme.

In an effort to hide incriminating evidence after eight of his co-conspirators were indicted last year, Sabo deleted the Discord account he used to be a moderator for the Atlas Trading Discord. These efforts to conceal his tracks ultimately failed, and Sabo now finds himself as a defendant in a $100 million securities fraud case.

SEC to Coinbase: No need for new crypto regulation, enforcement actions will continue

There have been several high-profile influencer cases over the past year that highlight the agency’s uptick in enforcement.

In October, the SEC charged celebrity influencer Kim Kardashian for her participation in the promotion of EthereumMax, alleging that she violated the anti-touting provision of federal securities laws by promoting EMAX tokens on her Instagram profile while neglecting to disclose to authorities the payment she received for doing so. Kardashian agreed to pay $260,000 in disgorgement and another $1 million in penalties, but neither admitted nor denied the SEC’s findings.

In February, former NBA superstar Paul Pierce was also charged with the illegal promotion of EthereumMax, eventually agreeing to pay a $1,115,000 penalty and approximately $240,000 in disgorgement and prejudgment interest. He also did not confirm or deny the SEC’s findings.

And in April, Tron founder Justin Sun and eight celebrities – including Lindsay Lohan, Jake Paul, Soulja Boy, Austin Mahone, Kendra Lust, Lil Yachty, Ne-Yo and Akon – were charged with a marketing scheme that involved “illegally touting TRX and/or BTT without disclosing that they were compensated for doing so and the details of their compensation.”

With the exception of Justin Sun, Soulja Boy and Austin Mahone, the parties involved have agreed to pay a total of more than $400,000 in disgorgement, interest, and penalties to settle the charges, without admitting or denying the SEC’s findings, the SEC said.

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