Lindsay Lohan, Jake Paul and Lil Yachty are among the celebrities charged in the SEC crypto case

Lindsay Lohan, Jake Paul, musicians Lil Yachty, Ne-Yo, Soulja Boy, Akon and Austin Mahone, and adult film star Kendra Lust were charged Wednesday with illegally promoting the securities of crypto companies under investigation by the SEC.

The commission today indicted crypto-asset entrepreneur Justin Sun and three of his entire companies for the unregistered offering and sale of crypto-asset securities Tronix (TRX) and BitTorrent (BTT). The charges also include fraudulently manipulating the secondary market for TRX through “wash trading” and orchestrating a scheme to pay celebrities to promote TRX and BTT without disclosing their compensation.

Lohan, Paul, DeAndre Cortez Way (Soulja Boy), Austin Mahone, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty), Shaffer Smith (Ne-Yo), and Aliaune Thiam (Akon) were arrested for “illegally promoting TRX “charged and/or BTT without disclosing whether they were compensated and what their compensation was,” the SEC said.

The commission said that all but Soulja Boy and Mahone agreed to pay a total of more than $400,000 in disgorgement, interest and penalties to settle the charges, without admitting or denying the findings of the investigation.

After a boom period, crypto has been on the brink of collapse for the past year from one of the industry’s most dominant companies, FTX. Sam Bankman-Fried, co-founder and CEO of FTX, faces a series of criminal charges for fraud and other alleged crimes related to the company’s collapse. Several well-known crypto pitchers, including Larry David, Tom Brady and Steph Curry, were named as defendants last November in a class-action lawsuit alleging they defrauded investors by promoting crypto exchanges.

The Sun case “reveals the risk investors face when crypto-asset securities are offered and sold without proper disclosure,” SEC Chairman Gary Gensler said. “As alleged, Sun and his companies not only targeted US investors with their unregistered bids and sales and raked in illegal returns of millions at the expense of investors, but also coordinated wax trading on an unregistered trading platform to create a misleading appearance of active create trade. . in the TRX. Sun further encouraged investors to buy TRX and BTT by running an advertising campaign in which he and his celebrity promoters hid the fact that the celebrities were being paid for their tweets.”

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, details the alleged unregistered offers and sales. Sun and its companies (Tron Foundation Limited, BitTorrent Foundation Ltd. and Rainberry Inc.) offered and sold TRX and BTT as investments through various unregistered “bounty programs” that “encourage interested parties to promote the tokens on social media.” recruit others for Tron-linked Telegram and Discord channels and create BitTorrent accounts in exchange for TRX and BTT distributions. The SEC also alleges that Sun, its BitTorrent Foundation and Rainberry “offered and sold BTT in unregistered monthly airdrops to investors, including in the United States, who bought and held TRX in Tron wallets or on participating crypto-asset trading platforms” .

The conduct violated Section 5 of the Securities Act, the SEC said.

The SEC said “wash trading” in this case apparently involved Sun “orchestrating a plan to artificially inflate the apparent trading volume of TRX in the secondary market,” and said it instructed its employees to participate to more than 600,000. Participate in TRX transactions between two cryptocurrencies. Asset trading platform accounts he managed with between 4.5 million and 7.4 million TRX trades daily.

“This schedule required a significant supply of TRX, which was apparently supplied by Sun. As alleged, Sun also sold TRX on the secondary market, raising $31 million in revenue from illegal, unregistered offerings and sales of the token,” the complaint states.

“While we are neutral on the technologies involved, we are far from neutral when it comes to investor protection,” said Gurbir S. Grewal, director of the SEC’s Enforcement Division. “As alleged in the complaint, Sun and others used a centuries-old playbook to deceive and harm investors by first offering securities without complying with registration and disclosure requirements and then manipulating the market for those same securities. At the same time, Sun paid celebrities with millions of social media followers to promote the unlisted offerings, and specifically said it would not disclose their compensation. This is precisely the behavior that federal securities laws are designed to protect against, regardless of the terminology used by Sun and others.