The Securities and Exchange Commission announced civil charges Wednesday against eight celebrities, alleging they illegally promoted cryptocurrencies Tronix and/or BitTorrent "without disclosing that they were compensated for doing so and the amount of their compensation."
They are actor Lindsay Lohan, YouTuber Jake Paul, adult film performer Michele Mason (Kendra Lust) and musicians Aliaune Thiam (Akon), DeAndre Cortez Way (Soulja Boy), Austin Mahone, Miles Parks McCollum (Lil Yachty) and Shaffer Smith (Ne-Yo).
Most of the celebrities, excluding Soulja Boy and Mahone, agreed to pay over $400,000 in penalties and interest to settle the charges, the SEC said in its release, noting that the payment does not signal an acceptance or a denial of the SEC’s allegations.
The SEC’s complaint, filed in U.S. District Court for Southern New York, also brought charges against crypto entrepreneur Justin Sun and three of his companies: Tron Foundation Limited, BitTorrent Foundation Ltd. and Rainberry Inc. (formerly BitTorrent).
He was charged with securities fraud, accused of the unregulated offer and sale of securities, market manipulation through extensive wash trading and "orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation," the news release said, referring to Tronix and BitTorrent.
"Wash trading" is the simultaneous purchase and sale of securities to create the appearance of active trading.
The SEC alleges that Sun and his companies offered and sold Tronix and BitTorrent "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."
Discord is a private chatroom and messaging platform that is popular with gaming influencers and, more recently, financial influencers.
According to the SEC, each of the unregistered offers and sales violated Section 5 of the Securities Act, which requires all nonexempt securities to be registered with the SEC.
A spokesperson for Paul declined to comment. A spokesperson for Lohan said in an email that "Lindsay was contacted in March 2022 and was unaware of the disclosure requirement," adding, "She agreed to pay a fine to resolve the matter."
Representatives for Sun and the other celebrities named in the complaint did not immediately respond to requests for comment.
Sun generated a profit of $31 million from illegal sales of his crypto token Tronix, SEC officials said. He directed his employees to conduct over 600,000 wash trades of Tronix between the two crypto asset trading platforms he controlled, according to the SEC.
“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 in a statement Wednesday.
It is not the first time the SEC has disciplined major celebrities for their promotion of crypto.
In February, NBA Hall of Famer Paul Pierce settled with the SEC over allegations he unlawfully touted and made misleading statements about a “crypto asset security," CNBC reported. Pierce promoted EMAX tokens, a crypto asset offered by EthereumMax, on Twitter while failing to disclose that he was paid for his promotion, the SEC alleged. Pierce did not admit or deny wrongdoing as part of the settlement and said he would pay a $1.1 million penalty and disgorge “approximately $240,000,” according to the SEC.
“This case is yet another reminder to celebrities: The law requires you to disclose to the public from whom and how much you are getting paid to promote investment in securities, and you can’t lie to investors when you tout a security,” Gensler said in a statement at the time.
In October, Kim Kardashian agreed to pay a $1.26 million fine after federal regulators said she failed to disclose she was paid $250,000 to publish an Instagram post about EMAX tokens, the SEC said in a statement.
The SEC charged seven social media influencers with securities fraud in December.
The influencers executed a “pump and dump” scheme, the SEC said, in which they encouraged their Twitter and Discord followers to buy stocks they had also bought so the group could profit from artificially inflated share prices.
