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SEC charges eight celebrities over promotion of cryptocurrency on social media

The Securities and Exchange Commission clawed back over $400,000 paid to celebrities who boosted crypto tokens on social media without properly disclosing that they were being compensated.

MANHATTAN (CN) — Actress Lindsay Lohan, boxer Jake Paul, and rapper Lil Yachty are among eight celebrities caught up in a Securities and Exchange Commission investigation for “illegally touting” TRX and BTT crypto asset securities to their millions of social media followers without disclosing they were paid for the promotion.

The SEC announced Wednesday that federal securities charges were filed in connection with the broader investigation of Chinese crypto entrepreneur Justin Sun and three of his companies: Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc., which marketed crypto asset securities under the brand names Tronix and BitTorrent.

Other celebrities charged included rapper Soulja Boy, R&B singer Akon, porn star Kendra Lust, Grammy-winning songwriter Ne-Yo, and YouTube sensation Austin Mahone.

“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 SEC complaint states. “Thus, the public was misled into believing that these celebrities had unbiased interest in TRX and BTT, and were not merely paid spokesperson.”

The six-count complaint further alleges Sun falsely denied that he and the Tron Foundation paid celebrities to tout.

 “There have been rumors lately of third party celebrities being paid to promote #TRON. #TRON Foundation is not involved in these activities. Nor is the foundation aware of the actors behind this,” Sun wrote on Twitter on Feb. 16, 2021, adding the same day: “If any celebrities are paid to promote TRON, we require them to disclose.”

According to an SEC settlement filing, Lohan, who moved to Dubai in 2014, was paid $10,000 to promote the cryptocurrency tokens on social media.

"Exploring #DeFi and already liking $JST, $SUN on $TRX. Super fast and 0 fee. Good job @justinsuntron,” the "Freaky Friday" star posted on Twitter in February 2021.

Pursuant to her settlement agreement with the regulator, the 100-character tweet will cost her $40,000, with Lohan agreeing to disgorge the $10,000 compensation from Tron, and pay a $30,000 civil penalty to the Securities and Exchange Commission.

Boxer and social media personality Jake Paul meanwhile took his compensation for shilling the tokens online in cryptocurrency assets valued at approximately $25,019. Paul, at the time of his promotion, had approximately 3.8 million Twitter followers.

Pursuant to his settlement agreement, Paul will return the $25,019 plus prejudgment interest of $1,811, and pay an additional $75,057 civil penalty.

With the exceptions of Mahone and Soulja Boy, all of the other celebrities charged also reached settlements with the SEC that involve “more than $400,000 in disgorgement, interest, and penalties to settle the charges, without admitting or denying the SEC’s findings,” according to the agency.

Like Lohan, 25-year-old Atlanta rapper Lil Yachty was also paid $10,000 to promote the cryptocurrency, according to his settlement filing. Fellow Atlanta songsmith Ne-Yo, who has written songs for Beyoncé and Rihanna, took $12,000 in crypto for his payment.

Porn star Kendra Lust, charged under her name Michele Anne Mason, was paid $995 to promote the TRON crypto tokens to her 1.2 million Twitter followers.

The SEC’s complaint further 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 Covid-19 pandemic was a boon of massive growth for both technology companies and the global cryptocurrency marketplace.

That surge began to wane in late 2021 as people began to travel, go out to restaurants or catch a show. They spent much less time in front of screens and, at the same time, the government stimulus checks that allowed people some financial cushion began to run out.

On top of that, in March 2022, the U.S. Federal Reserve began an aggressive string of rate hikes — its most powerful weapon to fight inflation, which had begun to rise rapidly.

“This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure,” SEC Chair Gary Gensler said Wednesday. “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.”

Gensler, who chairs the U.S. markets watchdog, has been leading a federal crackdown on the cryptocurrency marketplace, which he said is “rife with fraud, scams and abuse."

Follow @jruss_jruss
Categories / Financial, Government, Law

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