The Securities and Exchange Commission (SEC) has sued the founder of the Tron crypto, Justin Sun, for offering and selling unregistered securities.
The complaint states that Justin Sun allegedly not only offered unregistered securities for sale, but also illegally propagated securities and, most importantly, manipulated the markets.
The indictment specifically targets a number of companies he owns and controls, including Tron Foundation Limited (i.e., the so-called Tron Foundation), the BitTorrent Foundation, and Rainberry.
Unregistered securities would be precisely the TRX cryptocurrency and the BTT token.
In the complaint, the SEC writes:
“Starting around August 2017, and continuing thereafter, the Sun Defendants engaged in a scheme to distribute billions of TRX and BTT to the public while also creating active secondary markets on which TRX and BTT could be traded.
The Sun Defendants offered and sold TRX and BTT as securities and were thus required to register those offers and sales with the SEC unless an exemption from registration was available. But they never did so.”
Thus, the first accusation looks a lot like the one they brought against Ripple in late 2020.
Unregistered securities: the SEC targets the crypto Tron
More specifically, a security refers to an investment contract in which the investor puts in only money, in exchange for the promise of a financial return generated by the work or efforts of the other party, that is, the one who receives the money from the investor.
Under law, such contracts must be approved by the SEC in the US before they can be freely and legally sold in the marketplace.
So if the SEC is correct that Sun and his companies sold TRX and BTT as investment contracts without the approval of the authorities, they would have done so illegally.
It is worth noting that the law in many other parts of the world is also on similar positions, so if the SEC wins against Sun it is possible that many other countries would fall in line with this view.
The lawsuit against Ripple
However, the very precedent of the lawsuit against Ripple seems to play in Justin Sun’s favor.
In fact, it is now more than two years since that lawsuit has been going on without apparent progress. In other words, in two years the SEC has still failed to prove to the court that Ripple sold XRP as an investment contract.
While there are several commonalities, perhaps it will be even more difficult to prove to the court that TRX and BTT were sold as investment contracts.
So for now the position of Justin Sun, and the Tron Foundation and BitTorrent Foundation, does not appear to be any different from that of Ripple, so much so that Sun himself commented saying that this would be without merit.
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, and in the meantime will continue building the most decentralized financial system.
— H.E. Justin Sun 孙宇晨 (@justinsuntron) March 23, 2023
The SEC revealed that the so-called Tron Foundation and BitTorrent Foundation would not actually be foundations, but real for-profit companies.
So behind the Tron project would be a company aimed at generating profits for itself and its members, greatly scaling back the idea of a decentralized project that Sun itself keeps proposing.
It is worth noting that one of the reasons why Bitcoin is definitely considered a commodity, and not a security, is precisely the fact that there is no company, enterprise, or for-profit organization behind the Bitcoin project.
In fact, only Satoshi Nakamoto was behind Bitcoin, but he passed away twelve years ago practically giving away his Bitcoin protocol to all of humanity.
The SEC accuses the founder of the Tron crypto of market manipulation
What is even more serious, however, is the second accusation made by the SEC against Justin Sun.
Indeed, in the complaint, the US agency writes that Sun allegedly engaged in “manipulative wash trading” to create “the artificial appearance of legitimate investor interest” to keep TRX’s price afloat.
The allegation is very serious, because according to the SEC, Tron Foundation employees allegedly carried out TRX and BTT trades under the direction of Sun himself by making hundreds of thousands of wash trades.
It is unclear when these transactions would have taken place, but from the speculated volume it would seem to refer to the entire period of presence on the crypto markets of these two cryptocurrencies.
It is worth noting that the price of TRX over the years has remained more stable on average than that of other cryptocurrencies, such as Bitcoin and Ethereum. However, the absolute maximum peak remains that of January 2018, which is only one month away from listing. This detail actually gives pause for thought.
As for BTT, however, the situation is far worse.
First of all, a new version was issued last year after the first one had lost almost all of its value since its peak in April 2021, even falling below the initial values obtained at listing.
Moreover, this second version has done nothing but lose value over the months, so much so that it hit an all-time low a few days ago.
In other words, as an investment, the BitTorrent token has turned out to be lousy. It cannot be ruled out that someone pressured or requested the SEC to intervene, given the inevitable losses its investors have suffered.
The complaint of the SEC also alleges that Sun’s group did a lot of publicity to attract the public’s interest in TRX and BTT, even involving paid celebrities, including defendants Austin Mahone and DeAndre Cortez Way.
The fact is that although these celebrities were paid to promote TRX and BTT, their advertising content was not marked as such, thus leading the public to believe that they were sincere and unbiased.
Moreover, Justin Sun himself in February 2021 publicly and explicitly asked celebrities paid to promote TRON to make their sponsored content apparent, knowing full well instead that several sponsored contents were not declared as such.
The price reaction of TRX and BTT
The prices of TRX and BTT on the crypto markets have reacted to this complaint, but not resoundingly.
Yesterday, the price of TRX dropped suddenly by 13%, although this was in conjunction with the general decline in crypto markets due to the words spoken by the Fed chairman. In fact, in the following hours it recovered +7%.
In the same period, Bitcoin first posted a -6%, and then a +3%, so TRX’s price trend was the same, just a little wider.
BTT has had an even smaller swing than Bitcoin, because the drop was only 4%, followed by a +1.5%.
It is worth mentioning that the price of the BTT token, i.e., BitTorrent’s new token, is still very close to the absolute lows of a 10 or so days ago.
Thus TRX lost more than Bitcoin, but it did not lose much, given the seriousness of the SEC charges. By contrast, BTT lost little, partly because it had previously lost so much.