The Securities and Exchange Commission announced charges Wednesday against a prominent cryptocurrency entrepreneur and a group of celebrities who have promoted their companies, including actress Lindsay Lohan.
The second filed a complaint in federal court in the Southern District of New York accusing businessman Justin Sun of securities law violations related to his management of three crypto companies. The agency also indicted eight celebrities, including Ms. Lohan and social media influencer Jake Paul, for illegally promoting Mr. Sun’s cryptocurrencies.
Ms. Lohan, Mr. Paul and four other celebrities have agreed to pay a total of $400,000 to settle the charges.
The SEC charges are the latest in a series of federal enforcement efforts targeting the crypto industry, which has faced increasing scrutiny in the nearly five months since the implosion of FTX, the exchange founded by Sam Bankman-Fried. .
So far this year, the SEC has imposed fines and penalties on cryptocurrency lending companies and settled a case with Kraken, one of the largest American cryptocurrency exchanges. At the same time, federal banking regulators have expressed growing skepticism about cryptocurrencies, adding pressure on an uncaring industry after a procession of bankruptcies and market crashes over the past year.
On Wednesday, cryptocurrency exchange Coinbase Announced that it had received a so-called notice from Wells from the SEC, advising that the agency planned to bring enforcement action against the company.
“We are confident in the legality of our assets and services, and if necessary, we welcome legal process to provide the clarity we have been championing,” the company said in a statement.
Mr. Sun, 32, a longtime cryptocurrency investor, recently tried to brand himself as something of a crypto diplomat, working to encourage the adoption of digital assets around the world. He has served as Grenada’s representative to the World Trade Organization and refers to himself as “His Excellency of him” on social media.
But according to the SEC complaint, his companies, the Tron Foundation, BitTorrent Foundation, and Rainberry, offered cryptocurrencies that were not properly registered. Mr. Sun also engaged in manipulative business practices that created the artificial appearance that his digital currencies were attracting strong interest from investors, according to the complaint.
A representative for Mr. Sun did not immediately respond to a request for comment.
According to the SEC, Mr. Sun sparked interest in his crypto projects, which included digital currencies TRX and BTT, by recruiting celebrity backers.
“Although the celebrities were paid to promote TRX and BTT, their social media ads did not disclose that they had been paid or the amounts of their payments,” the complaint states. “The public was misled into believing that these celebrities had an impartial interest in TRX and MTB, and were not simply paid spokespersons.”
In February 2021, Lohan promoted TRX on Twitter in exchange for a $10,000 payment, the SEC said. “Super fast and free of charge,” he wrote. “Good job @justinsuntron.” Through an intermediary, Tron provided Ms. Lohan with the language of the tweet, according to the SEC
In addition to her and Mr. Paul, the SEC charged DeAndre Cortez Way, the rapper better known as Soulja Boy; Austin Mahone, singer-songwriter; Michele Anne Mason, film director and internet personality known as Kendra Lust; Miles Parks McCollum, the rapper known as Lil Yachty; Shaffer Smith, an artist who goes by the name Ne-Yo; and Aliaune Thiam, an entertainer known as Akon. All except Mr. Way and Mr. Mahone settled their charges.
Under federal law, endorsers must disclose whether they received compensation for the promotion and specify the amount. Several other celebrities, including Kim Kardashian, have also faced SEC fines for their promotion of cryptocurrency investments.