On March 22, the US Securities and Exchange Commission (SEC) filed a formal lawsuit against Justin Sun, the founder of Tron and a member of Huobi’s global advisory committee, as well as three of his wholly-owned companies. The charges against them include accusations of selling securities illegally, engaging in fraud, and manipulating the market.
According to a news release by the SEC, the organization is taking legal action against Justin Sun, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent) for allegedly selling crypto asset securities Tronix (TRX) and BitTorrent (BTT) without proper registration. Additionally, the SEC has accused Sun and his companies of manipulating the secondary market for TRX in a fraudulent manner.
As per the SEC’s allegations, Sun reportedly instructed his employees to conduct over 600,000 wash trades of TRX between two crypto asset trading platform accounts that he controlled, during the period of April 2018 to February 2019. The quantity of TRX that was wash traded daily ranged from 4.5 million to 7.4 million tokens. In order to execute this scheme, a considerable amount of TRX was needed, which Sun is said to have provided.
“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.
Sun and his companies were also charged with orchestrating a scheme to pay celebrities to promote TRX and BTT without properly disclosing their compensation. Eight celebrities were involved in this scheme, including actress Lindsay Lohan, boxer Jake Paul, and rapper DeAndre Cortez Way (Soulja Boy).
TRX’s price fell by 13% on the SEC charges. Other tokens related to Sun, including Huobi (HT), Just (JST) and Sun Token (SUN), also fell by over 5% on March 22.
On the same day, the SEC issued a Wells Notice to Coinbase, a cryptocurrency exchange, alerting the company that it may have violated US securities laws.
Prior to the November 2022 crash of cryptocurrency exchange FTX, the cryptocurrency market had been experiencing turbulence due to an increase in interest rates and widespread risk transfer. This led to the collapse of stable currency Terra and the bankruptcy of Three Arrows Capital, as well as the exchanges Celsius and Voyager. Following the FTX crash, the SEC has been taking a more proactive approach in regulating the crypto industry. The agency has initiated enforcement action against various players in the industry, including cryptocurrency exchange platforms Gemini, Genesis, and Kraken, and South Korean cryptocurrency tycoon Do Kwon.