The SEC vs Justin Sun (TRON) Explained

The SEC Has Charged Justin Sun & related entities over ‘Fraud & Other Securities Law Violations’ - The SEC’s charges allege Tron’s Native Token, TRX, is a security.

• The SEC’s charges target Justin Sun and 3 of ‘his wholly-owned companies,’ Tron Foundation Limited, BitTorrent Foundation, and Rainberry, formerly BitTorrent.
• The SEC alleges TRX and the BitTorrent cryptocurrency BTT constituted unregistered offers and sales of ‘crypto asset securities.’ In addition, Sun and the entities were charged with ‘fraudulently manipulating the secondary market for TRX through extensive wash trading.’
• Charges were also brought due to an alleged ‘scheme to pay celebrities to tout TRX and BTT without disclosing their compensation.’ The SEC also brought charges against the celebrities involved in the scheme.

According to the SEC, Sun violated ‘antifraud and market manipulation provisions’ when he used wash trading to inflate TRX trading volume. Sun, on secondary markets ‘generated proceeds of (~$31M) from illegal, unregistered offers and sales of the token.’ Following the charges, Sun responded via Twitter that:

"We believe the complaint lacks merit, and in the meantime will continue building the most decentralized financial system."

Tron was launched in 2018, and despite the network achieving success on some fronts, such as hosting 55% of USDt tokens, the network has often been criticized for copying new crypto trends. For instance, the network’s algorithmic stablecoin USDD was seen as attempting to replicate the UST stablecoin on the Luna network. Tron itself is often described as a copy of Ethereum with limited changes.

TRX sold off as much as 12% following the SEC announcing the charges. The token currently has a market cap of USD 5.72B. In regards to US trading venues, TRX is not supported on Coinbase, but is offered on Kraken.

Takeaway: In many ways, Tron and TRX represent a relatively typical example of a cryptocurrency and associated network: TRX was launched via an ICO in 2017 which raised USD 70M; Tron is supported via the efforts of the Tron Foundation, other entities, and Sun; the Tron network claims to be decentralized and not dependent on any one group. In this context, the charges highlight the extent of regulatory and legal complexity faced by the crypto space.