Lindsay Lohan, Jake Paul, Lil Yachty and adult film star Michele Mason (Kendra Lust) are among eight celebrities hit with charges this week from the Securities Exchange Commission. The group were caught up in the SEC's investigation into Justin Sun, the owner of BitTorrent and the Tron blockchain platform, and their respective crypto assets BTT and TRX.
The SEC claims the celebs were being paid to promote BTT and TRX, which are considered a security, but failed to properly disclose that to investors (i.e. their audiences and followers). Six of the stars have agreed to pay out more than $400,000 to settle the claims: Paul, Lohan, Yachty, Mason, rapper Akon and R&B artist Ne-Yo. None of the six admitted or denied the claims.
The SEC said the other two celebrities in the complaint, pop singer Austin Mahone and rapper Soulja Boy, didn't reach a settlement. Sun's whereabout are currently unknown, according to the complaint, but he and his companies continue to face charges that he orchestrated the whole thing. And that he engaged in market fraud and wash trading -- a market manipulation tactic in the same wheelhouse as pump-and-dump schemes, where a security is made to look popular through a series of rapid-fire sales and purchases without that security ever substantially changing ownership.
In fact, a crypto pump-and-dump scheme is exactly what he's been accused of in other countries before making a timely escape, as reported earlier this month by the Verge.
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"This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure," said SEC Chair Gary Gensler in the commission's Wednesday release.
"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. 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," Gensler said.
The SEC alleges that while paying the celebrities to hype his product from at least April 2018 through February 2019, Sun had his other employee engage in more than 600,000 wash trades of TRX -- amounting to 4.5 million and 7.4 million TRX wash traded daily -- which generated $31 million from the illegal sales.
"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 in the statement. "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."
Lohan's publicist told USA Today that the actress was unaware of the disclosure requirement when she was originally contacted in March and agreed to pay the fine. Lohan, who announced last week that she is pregnant, handed over the $10,000 she was paid for the posts along with a $30,000 fine.
Celebrity involvement in crypto endorsement scams isn't unheard of, though. Lohan and the other celebs now join the ranks of Kim Kardashian, who paid the SEC a whopping $1.3 million in fines when she was paid to promote cryptocurrency EMAX on Instagram but didn't tell her audience she was paid to do so.
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