The Securities and Exchange Commission (SEC) is charging celebrities—including actress Lindsay Lohan, YouTube personality Jake Paul, and rapper Lil Yachty—for allegedly helping an entrepreneur pump up his cryptocurrencies.
The celebrities, which also include rapper Souja Boy and singer Ne-Yo, received payments from business executive Justin Sun, the founder of the Tron cryptocurrency. In return, they touted Tron and the BitTorrent Token on social media, including Twitter, the SEC says.
The problem is that none of the celebrities disclosed to the public that they had been paid to promote the cryptocurrencies, which is a violation of federal securities law, the SEC adds. “Thus, the public was misled into believing that these celebrities had unbiased interest in TRX and BTT, and were not merely paid spokespersons,” the SEC says in a lawsuit.
“This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure,” adds SEC Chair Gary Gensler.
In total, eight celebs were charged. But six of them—including Lohan, Paul and Lil Yachty—have already “agreed to pay a total of more than $400,000 in disgorgement, interest, and penalties to settle the charges, without admitting or denying the SEC’s findings,” the US regulator says.
The two remaining celebrities, Souja Boy and singer Austin Mahone, appear to be resisting giving up their payments. On Wednesday, the SEC filed a lawsuit demanding a US court force both celebrities, along with Sun, to give up all their ill-gotten gains.
The SEC alleges Sun began paying celebrities for their endorsements starting in January 2021. Souja Boy was paid $10,000 for his tweets to promote Tron on Twitter while Mahone received $20,059 in Bitcoin for his promotion. A trio of other unnamed celebrities received “$10,000, $955.70, and $12,000, respectively, for their tweets,” the lawsuit alleges.
Meanwhile, Sun tried to deny any celebrities had been paid to promote his cryptocurrencies with several tweets in February 2021.
The SEC’s lawsuit goes on to claim Sun orchestrated several schemes to artificially pump up the value of Tron and BitTorrent Token. This included using his employees “to engage in more than 600,000 wash trades” to create the illusion that Tron was being extensively traded on the cryptocurrency markets.
“As alleged, Sun also sold TRX (Tron) into the secondary market, generating proceeds of $31 million from illegal, unregistered offers and sales of the token,” the SEC adds.
Sun is rejecting the allegations. “The SEC’s civil complaint earlier today is just the latest example of actions it has taken against well known players in the blockchain and crypto space. We believe the complaint lacks merit,” he wrote in a tweet.
Still, the charges are a reminder to be weary about celebrities touting cryptocurrencies on Twitter. Last year, Kim Kardashian was forced to pay $1.26 million for receiving a $250,000 payment to promote EthereumMax on her Instagram account without disclosing the compensation.