Tron Creator Justin Sun Faces U.S. SEC Lawsuit Over Securities and Market Manipulation Charges

On Wednesday, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Justin Sun, accusing him of selling and distributing unregistered securities and engaging in market manipulation and fraud. 

The SEC stated that Sun, along with the Tron Foundation, BitTorrent Foundation, and BitTorrent (now Rainberry), were involved in the sale of Tronix (TRX) and BitTorrent (BTT) tokens, which the SEC deemed to be unregistered crypto securities. 

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The SEC further claimed that the defendants utilized an "extensive wash trading" scheme to fraudulently manipulate the secondary market of TRX, with Sun allegedly attempting to boost TRX's trading volume through the wash trading scheme by having his own employees conduct over 600,000 wash trades of TRX between two crypto trading platform accounts that he controlled. 

The court documents suggest that the Tron Foundation employees conducted the trades, while the BitTorrent and Tron foundations controlled the accounts, and Rainberry employees transferred funds for the trading. 

The SEC alleged that Justin Sun, appointed as Grenada's ambassador to the World Trade Organization (WTO) the previous year, attempted to boost TRX's trading volume artificially using a wash trading scheme. The scheme involved his own employees conducting over 600,000 wash trades of TRX between two crypto asset trading platform accounts that Sun controlled. The court filing stated that the Tron Foundation employees performed the trades. At the same time, the BitTorrent and Tron foundations managed the accounts, and Rainberry employees facilitated the transfer of funds for trading.

On Wednesday, Tron's native token, TRX, decreased by 13% following the SEC's accusation. Additionally, other tokens associated with Justin Sun, such as Huobi (HT), Just (JST), and Sun Token (SUN), also experienced a decline of over 5%.

The SEC also accuses Lindsay Lohan, Jake Paul, Soulja Boy, Lil Yachty, Ne-Yo, Akon, and Michele Mason of promoting TRX and BTT without disclosing their payment. It has filed illegal touting charges against them. Most of these celebrities have settled the charges brought against them.

The court documents stated that Justin Sun claimed on social media that the paid celebrities promoting TRX and BTT were obligated to reveal their compensation. Still, he arranged the payments to the celebrities and was aware they did not disclose it.

The SEC claimed that between 4.5 million to 7.4 million TRX was traded daily through the wash trading scheme. This scheme required a large amount of TRX, which Justin Sun reportedly provided. Additionally, the SEC alleged that Sun sold TRX in the secondary market, resulting in $31 million in illegal and unregistered offers and sales of the token.

According to the SEC, the daily trading volume of TRX through the wash trading scheme was estimated to be between 4.5 million and 7.4 million tokens.

"This scheme required a significant supply of TRX, which Sun allegedly provided. As alleged, Sun also sold TRX into the secondary market, generating proceeds of $31 million from illegal, unregistered offers and sales of the token," the SEC said.

Gary Gensler, the Chair of the SEC, released a statement saying that the case illustrates the possible dangers that crypto investors could encounter when dealing with unregistered securities.

"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," he said. 

"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."