The U.S. Securities and Exchange Commission is charging the enigmatic crypto entrepreneur Justin Sun and three of his wholly owned companies with fraud for selling cryptocurrencies Tronix (TRX) and BitTorrent (BTT) as unregistered securities.
The three companies charged are Rainberry Inc., Tron Foundation Limited and BitTorrent Foundation Ltd. Rainberry is based in San Francisco and is the owner of BitTorrent, the peer-to-peer downloading application that is popular for illegally downloading music and movies. The company also owns a controversial streaming platform D-Live that gained infamy for being used by right-wing extremists to live stream the insurrection at the Capitol on Jan. 6.
In 2018, Rainberry was acquired by cryptocurrency startup TRON, which was founded by Sun in 2014. Sun, a Chinese-born citizen of Grenada, is based in Switzerland serving as permanent representative of Grenada to the World Trade Organization in Geneva. Sun made headlines in the city in 2019 when he set a then-record price of $4,567,888 to have lunch with Warren Buffet to benefit San Francisco’s Glide Foundation.
We reached out to Rainberry and will update this story if the company responds.
The SEC’s civil complaint, filed in U.S. District Court for the Southern District of New York, alleges that Sun committed fraud by artificially inflating the trading volume of TRX in the secondary market by ordering his employees to make over 600,000 wash trades of the cryptocurrency between two crypto trading exchanges that Sun controlled. It claims that Sun generated proceeds of $31 million from sales of the tokens.
It also alleges that Sun and his companies illegally sold TRX and BTT as investments through "bounty programs," which encouraged buyers to promote the cryptocurrencies on social media and recruit others to buy and promote the tokens. The agency claims that the sale of the tokens are unregistered securities and a violation of the Securities Act.
“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 in a press release. “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.”
The SEC is also charging a number of celebrities who were paid to promote TRX and BTT and did not disclose that they were compensated. The celebs include Lindsay Lohan, YouTuber Jake Paul and rappers Soulja Boy, Lil Yachty, Ne-Yo and Akon. All accepted to pay a $400,000 settlement except for Soulja Boy.
The charges come as the SEC and Gensler are taking a much harsher tack against the crypto industry following the collapse of crypto exchange FTX. In recent months the agency fined crypto exchange Kraken for its staking program and launched an investigation into Coinbase over whether the exchange sold unregistered securities. Similarly, San Francisco-based Ripple, CEO Brad Garlinghouse and co-founder Chris Larsen are all facing SEC charges of breaching securities laws by selling XRP without first registering it with the regulator.
