(Updates with details from filing, decline to comment from one
defendant's lawyer)
By Chris Prentice and Jonathan Stempel
NEW YORK, March 22 (Reuters) - The U.S. Securities and
Exchange Commission on Wednesday charged Chinese cryptocurrency
entrepreneur Justin Sun with fraud, and accused eight
celebrities including actress Lindsay Lohan and rapper Soulja
Boy with illegally promoting his crypto assets.
Sun and his companies Tron Foundation, BitTorrent Foundation
and Rainberry were accused of having since August 2017 schemed
to distribute billions of crypto assets known as Tronix (TRX)
and BitTorrent (BTT) and artificially inflated trading volume.
He was also accused of concealing payment to celebrities to
promote TRX and BTT on social media accounts, misleading the
public into thinking they had "unbiased interest in TRX and BTT,
and were not merely paid spokespersons."
The SEC said Sun's activity generated tens of millions of
dollars of illegal profit at other investors' expense.
"This case demonstrates again the high risk investors face
when crypto asset securities are offered and sold without proper
disclosure," SEC Chair Gary Gensler said in a statement.
Sun did not immediately respond to a request for comment via
Twitter. A lawyer for him could not immediately be identified.
The other celebrities charged included the singers Akon,
Austin Mahone and Ne-Yo, social media personality and boxer Jake
Paul, rapper Lil Yachty and porn actress Kendra Lust.
All but Soulja Boy and Mahone agreed to settle, without
admitting wrongdoing, and together paid more than $400,000.
Andrew Brettler, a lawyer for Lohan, said the actress did
not know about the disclosure requirements until last March.
"From the outset, she cooperated with the SEC's
investigation and ultimately agreed to disgorge the small amount
of money she received and paid a fine to resolve this matter,"
her attorney Andrew Brettler said in an emailed statement.
A lawyer for Kendra Lust declined to comment. Lawyers
for the other celebrities did not respond immediately to
requests for comment.
The SEC has been ratcheting up efforts to crack down on the
crypto industry, which Gensler has called a "Wild West" riddled
with misconduct. Its efforts gathered pace after November's
collapse of Sam Bankman-Fried's cryptocurrency exchange FTX.
In its complaint filed in Manhattan federal court, the SEC
said Sun sold TRX and BTT as securities, and thus their sale
needed to be registered with the agency.
It said Sun inflated apparent trading volume in TRX through
extensive "wash trading," involving simultaneous or
near-simultaneous purchases and sales with no real change in
ownership.
From at least April 2018 to February 2019, Sun ordered
employees to conduct hundreds of thousands of wash trades
between two accounts he controlled, the SEC said.
By creating a false and misleading appearance of legitimate
trading, Sun made it easier to sell TRX while maintaining stable
prices, and generated $31 million of proceeds from illegal,
unregistered offers and sales of TRX, the SEC said.
(Reporting by Chris Prentice and Jonathan Stempel in New York;
Editing by Lisa Shumaker and Lincoln Feast.)
