The Securities and Exchange Commission today announced charges against crypto asset entrepreneur Justin Sun and three of his wholly-owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), for the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT). The SEC also charged Sun and his companies with fraudulently manipulating the secondary market for TRX through extensive wash trading, which involves the simultaneous or near-simultaneous purchase and sale of a security to make it appear actively traded without an actual change in beneficial ownership, and for orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation.

The SEC's complaint, filed in U.S. District Court for the Southern District of New York, alleges that Sun and his companies offered and sold TRX and BTT as investments through multiple unregistered "bounty programs," which directed interested parties to promote the tokens on social media, join and recruit others to Tron-affiliated Telegram and Discord channels, and create BitTorrent accounts in exchange for TRX and BTT distributions. The complaint further alleges that Sun, BitTorrent Foundation, and Rainberry offered and sold BTT in unregistered monthly airdrops to investors, including in the United States, who purchased and held TRX in Tron wallets or on participating crypto asset trading platforms. According to the complaint, each of these unregistered offers and sales violated Section 5 of the Securities Act of 1933 ("Securities Act").

The Commission also alleges that Sun violated Sections 17(a)(1) and (3) of the Securities Act and Sections 9(a)(1) and (2) and 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder by orchestrating a scheme to artificially inflate the apparent trading volume of TRX in the secondary market. From at least April 2018 through February 2019, Sun allegedly directed his employees to engage in more than 600,000 wash trades of TRX between two crypto asset trading platform accounts he controlled, with between 4.5 million and 7.4 million TRX wash traded daily. 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 simultaneously charged DeAndre Cortez Way (Soulja Boy) and Austin Mahone, along with six other celebrities who agreed to settle the SEC's charges, for illegally touting TRX and/or BTT without disclosing that they were compensated for doing so and the amount of their compensation, in violation of Section 17(b) of the Securities Act. The SEC's complaint also charges Justin Sun, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. with aiding and abetting the celebrities' violations of Section 17(b) of the Securities Act.

The SEC's investigation was conducted by Adam B. Gottlieb, Ann Rosenfield, John Lucas, and John Marino. It was supervised by Paul Kim, Michael Brennan, Jorge G. Tenreiro, and David Hirsch. The SEC's litigation will be led by Timothy Halloran and Mr. Gottlieb, under the supervision of Melissa Armstrong.