Crypto Entrepreneur and Celebrity Promoters Face S.E.C. Charges
The Securities and Exchange Commission announced charges on Wednesday against a prominent cryptocurrency entrepreneur and a group of celebrities who promoted his ventures, including the actress Lindsay Lohan.
The S.E.C. filed a complaint in federal court in the Southern District of New York charging the entrepreneur, Justin Sun, with securities law violations linked to his management of three crypto companies. The agency also charged eight celebrities, including Ms. Lohan and the social media influencer Jake Paul, with illegally promoting Mr. Sun’s cryptocurrencies.
Ms. Lohan, Mr. Paul and four of the other celebrities agreed to pay a total of $400,000 to settle the charges.
The S.E.C. charges are the latest in a series of federal enforcement efforts targeting the crypto industry, which has faced mounting scrutiny in the nearly five months since the implosion of FTX, the exchange founded by Sam Bankman-Fried.
So far this year, the S.E.C. has levied fines and penalties against crypto lending firms and settled a case with Kraken, one of the largest American crypto exchanges. At the same time, federal banking regulators have expressed growing skepticism about crypto, raising the pressure on a freewheeling industry after a procession of bankruptcies and market meltdowns over the last year.
On Wednesday, the crypto exchange Coinbase announced that it had received a so-called Wells notice from the S.E.C., warning that the agency was planning on bringing an enforcement action against the company.
“We are confident in the legality of our assets and services, and if needed, we welcome a legal process to provide the clarity we have been advocating for,” the company said in a statement.
A longtime crypto investor, Mr. Sun, 32, has recently tried to brand himself as a kind of crypto diplomat, working to encourage the adoption of digital assets across the world. He has served as Grenada’s representative to the World Trade Organization, and he refers to himself as “His Excellency” on social media.
But according to the S.E.C.’s complaint, his companies — Tron Foundation, BitTorrent Foundation and Rainberry — offered cryptocurrencies that were not properly registered. Mr. Sun also engaged in manipulative trading practices that created the artificial appearance that his digital currencies were attracting strong investor interest, the complaint said.
A representative for Mr. Sun did not immediately respond to a request for comment.
According to the S.E.C., Mr. Sun drummed up interest in his crypto projects — which included the digital coins TRX and BTT — by recruiting celebrity endorsers.
“Although the celebrities were paid to promote TRX and BTT, their touts on social media did not disclose that they had been paid or the amounts of their payments,” the complaint said. “The public was misled into believing that these celebrities had unbiased interest in TRX and BTT, and were not merely paid spokespersons.”
In February 2021, Ms. Lohan promoted TRX on Twitter in exchange for a $10,000 payment, the S.E.C. said. “Super fast and 0 fee,” she wrote. “Good job @justinsuntron.” Through an intermediary, Tron had provided Ms. Lohan with the tweet’s language, according to the S.E.C.
In addition to her and Mr. Paul, the S.E.C. charged DeAndre Cortez Way, the rapper more commonly known as Soulja Boy; Austin Mahone, a singer and songwriter; Michele Anne Mason, a film director and internet personality known as Kendra Lust; Miles Parks McCollum, the rapper known as Lil Yachty; Shaffer Smith, a performer who goes by Ne-Yo; and Aliaune Thiam, an entertainer known as Akon. All except Mr. Way and Mr. Mahone settled their charges.
Under federal law, people who endorse securities are required to disclose whether they received compensation for the promotion, and to specify the amount. Several other celebrities, including Kim Kardashian, have also faced S.E.C. fines for their promotion of crypto investments.
