After reporting on all things BitTorrent-related for the 13 years leading up to May 2018, TorrentFreak spotted something out of the ordinary.
BitTorrent Inc., the company founded by BitTorrent inventor Bram Cohen, and the owner of uTorrent, the world’s most recognized torrent client, suddenly had a new name. When asked about the change, Rainberry Inc. said it was a “corporate decision” not unlike the Alphabet/Google exercise.
Less than two weeks later, we were able to reveal that TRON founder Justin Sun was planning to buy BitTorrent Inc. Less than a month after that, Sun closed the deal with a reported offer of $140 million.
A shareholder quoted in a TechCrunch report revealed that one of Sun’s aims was to use the BitTorrent acquisition to “legitimize” TRON’s business.
According to a Securities and Exchange Commission announcement published a few hours ago, the plan failed in at least one key area. Most likely, many, many more.
Fraud: SEC Charges Justin Sun and Three Wholly-Owned Companies
Claims that the SEC had already opened an investigation into Sun’s business activities have been around for a long time. An extraordinary article written by Christopher Harland-Dunaway and published by The Verge last year left very little doubt.
In an announcement Wednesday, the SEC revealed charges against Justin Sun and three of his wholly-owned companies – Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent Inc.) – for the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT).
Sun and his companies were further charged with fraudulently manipulating the secondary market for TRX through extensive wash trading, described by the SEC as “simultaneous or near-simultaneous purchase and sale of a security to make it appear actively traded without an actual change in beneficial ownership.”
Alleged Crypto-Shill Celebrities
The SEC also charged eight celebrities for promoting TRX and/or BTT without disclosing they were being paid to do so.
Actress Lindsay Lohan, YouTuber/Boxer Jake Paul, DeAndre Cortez Way (Soulja Boy), and singer/songwriter Austin Mahone, are joined by porn actress Michele Mason (aka Kendra Lust), Miles Parks McCollum (Lil Yachty), Shaffer Smith (Ne-Yo) and Aliaune Thiam (Akon) on the SEC’s list.
The SEC’s complaint alleges that Sun and his companies sold TRX and BTT as investments via unregistered “bounty programs” that saw partners promote the tokens on social media while recruiting others to join Tron-affiliated Telegram and Discord channels.
Sun, BitTorrent Foundation, and Rainberry reportedly sold BTT in unregistered monthly airdrops to investors who purchased and held TRX in Tron wallets or on other crypto trading platforms. The SEC says that every offer and sale violated Section 5 of the Securities Act.
Fraud and Market Manipulation
The SEC alleges that Sun was also the architect of a scheme that sought to artificially inflate the volume of TRX on the secondary market.
During a 10-month period 2018/2019, Sun allegedly directed his employees “to engage in more than 600,000 wash trades of TRX between two crypto asset trading platform accounts [Sun] controlled, with between 4.5 million and 7.4 million TRX wash traded daily.”
Sun is said to have supplied a significant amount of TRX to facilitate the scheme while also selling TRX into the secondary market himself. These “illegal, unregistered offers and sales” reportedly generated $31 million.
Sun’s Stunts Slammed by SEC
“While we’re neutral about the technologies at issue, we’re anything but neutral when it comes to investor protection,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
“As alleged in the complaint, Sun and others used an age-old playbook to mislead and harm investors by first offering securities without complying with registration and disclosure requirements and then manipulating the market for those very securities.
“At the same time, Sun paid celebrities with millions of social media followers to tout the unregistered offerings, while specifically directing that they not disclose their compensation.”
According to the SEC, six of those celebrities have already paid their way out. Lohan, Paul, Lust, McCollum, Smith, and Thiam agreed to hand over a combined $400,000 in settlements for their alleged roles in a magic bean business we called out almost four years ago.