The celebrities reportedly took money to advertise Tronix and BitTorrent without disclosing their compensation. Kendra Lust, an adult film star, and Austin Mahone were also charged. Except for Soulja Boy and Mahone, they agreed to pay more than $400,000 to settle the accusations without admitting or contesting the SEC’s conclusions.
The allegations are part of a larger probe of cryptocurrency pioneer Justin Sun and his firms, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (previously BitTorrent Inc.), for the unregistered offer and sale of Tronix and BitTorrent. Sun is accused of violating federal securities laws by inflating Tronix’s trading volume and persuading investors to buy Tronix and BitTorrent by paying celebrities with large social media followings to promote the company’s offerings while instructing them not to disclose their compensation.
Gurbir S. Grewal, head of the SEC’s Division of Enforcement, remarked that while the SEC is impartial on the technology at issue, it is far from neutral when it comes to investor safety. “Regardless of the labels Sun and others used, this is the very conduct that the federal securities laws were designed to protect against,” he said in a statement accompanying the news of the accusations.
In addition to accusing the celebrities, the SEC charged Sun and his enterprises with breaching registration and disclosure rules and manipulating the securities market. According to the lawsuit, Sun allegedly employed an old playbook to deceive and injure investors.
Sun is accused of coordinating wash trading on an unregulated trading platform to give the false appearance of busy TRX trading. Sun persuaded investors to buy TRX and BTT even more by executing a promotional campaign in which he and his celebrity advocates concealed the fact that the celebrities were paid for their tweets.
Similar incidents involving celebrities pushing fraudulent initial coin offerings have resulted in similar accusations. T.I. was accused in 2020 with promoting fraudulent initial coin offers in connection with FLiK, while DJ Khaled was charged in 2018 with failing to declare funds received for promoting an initial coin offering from Centra Tech.
The allegations strongly message celebrities that any income they get for promoting cryptocurrency must be disclosed or they will face legal penalties. Before investing in any cryptocurrency or associated assets, investors should exercise caution and conduct thorough research.