Chinese man charged by SEC with fraud now heavily invests in Trump crypto

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A Chinese national, charged with fraud by the SEC, just sent Donald Trump $18 million

Chinese Crypto entrepreneur Justin Sun paid $6.2 million for a banana — sold by Sotheby's as conceptual art — and then ate it last Friday.
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“… On November 25, Sun purchased $30 million in crypto tokens from World Liberty Financial, a new crypto venture backed by President-elect Donald Trump. Sun said his company, TRON, was committed to "making America great again."

… World Liberty Financial planned to sell $300 million worth of crypto tokens, known as WLF, which would value the new company at $1.5 billion. But, before Sun's $30 million purchase, it appeared to be a bust, with only $22 million in tokens sold. Sun now owns more than 55% of purchased tokens.

Sun's decision to buy $30 million in WLF tokens has direct and immediate financial benefits for Trump. A filing by the company in October revealed that "$30 million of initial net protocol revenues" will be "held in a reserve… to cover operating expenses, indemnities, and obligations." After the reserve is met, a company owned by Donald Trump, DT Marks DEFI LLC, will receive "75% of the net protocol revenues."

So before Sun's purchase, Trump was entitled to nothing because the reserve had not been met. But Sun's purchase covered the entire reserve, so now Trump is entitled to 75% of the revenues from all other tokens purchased. As of December 1, there have been $24 million WLF tokens sold, netting Trump $18 million.

Sun is also joining World Liberty Financial as an advisor, making Sun and the incoming president business partners.

While Trump has the cash, Sun's tokens are effectively worthless.

To comply with U.S. securities law, WLF tokens are "non-transferable and locked indefinitely in a wallet or smart contract until such time, if ever, [WLF tokens] are unlocked through protocol governance procedures in a fashion that does not contravene applicable law."

The only thing that Sun can do with his tokens is participate in the "governance" of World Liberty Financial. Right now, the only thing World Liberty Financial does is sell tokens. …”
 
(Cont’d)

“… On March 22, 2023, the SEC charged Sun and three companies he owns. The SEC accused Sun of marketing unregistered securities and "fraudulently manipulating the secondary market" for a crypto token "through extensive wash trading."

Wash trading involves "the simultaneous or near-simultaneous purchase and sale of a security to make it appear actively traded without an actual change in beneficial ownership."

In other words, according to the SEC, Sun made it seem like there was a lot of interest in crypto tokens he issued when much of the trading was fraudulent and manufactured by Sun.

The SEC also charged Sun with "orchestrating a scheme to pay celebrities to tout" his crypto tokens "without disclosing their compensation." Federal law requires people who endorse securities to "disclose whether they received compensation for the promotion, and to specify the amount." The celebrities involved included Lindsay Lohan, Jake Paul, and Soulja Boy.

… The litigation against Sun is ongoing, with a federal judge considering a motion by Sun's attorneys to dismiss the charges. The current SEC Chairman, Gary Gensler, who announced the charges against Sun, will step down when Trump takes office in January. A new SEC commissioner appointed by Trump could settle or dismiss the charges against Sun.

…
In addition to his 75% share of revenues over $30 million, Trump's company was also awarded 22.5 billion WLF tokens. At the current sale price, these tokens are worth more than $300 million. That is more than 20 billion tokens being offered for sale publicly. (This makes the "governance" value of WLF tokens, which was already questionable, effectively worthless. No matter how many tokens you own, Trump will always be able to outvote other token holders.)

Right now, Trump's tokens — like those purchased by Sun — are worthless because they cannot be transferred.

But Trump could appoint a new SEC chairman who is friendly to the crypto industry and who would create new rules allowing the WLF tokens and similar crypto assets to be legally traded.

If the price of the tokens increases when they hit the open market, which is a possibility for a crypto token backed by the President of the United States, the value of Trump's tokens could be in the billions. …”
 
Cont’d

“… Chinese Crypto entrepreneur Justin Sun paid $6.2 million for a banana — sold by Sotheby's as conceptual art — and then ate it last Friday.

… The New York Times, for example, has published five articles about Sun's purchase of the banana but none about Sun's $30 million purchase of WLF tokens and his business partnership with Trump.

The Washington Post has published three articles about the banana, but its coverage of Sun's purchase of WLF tokens was limited to one short paragraph in a larger editorial about the crypto industry. (The paragraph does not explain how Trump personally profits from Sun's token purchase.)

The Wall Street Journal did publish a short piece about Sun's token purchase on its "Live Update" blog, but the piece was not viewed as significant enough to be included in the print edition. The paper published two articles, plus a video, focused on the banana. One of the Wall Street Journal articles about the banana was published on the front page of the paper. …”



 


From the SEC news release:

“… The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, alleges that Sun and his companies offered and sold TRX and BTT 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.

The complaint further alleges that Sun, BitTorrent Foundation, and Rainberry offered and sold BTT in unregistered monthly airdrops to investors, including in the United States, who purchased and held TRX in Tron wallets or on participating crypto asset trading platforms.

According to the complaint, each of these unregistered offers and sales violated Section 5 of the Securities Act.

The Commission also alleges that Sun violated the antifraud and market manipulation provisions of the federal securities laws by orchestrating a scheme to artificially inflate the apparent trading volume of TRX in the secondary market.

From at least April 2018 through February 2019, Sun allegedly directed his employees to engage in more than 600,000 wash trades of TRX between two crypto asset trading platform accounts he controlled, with between 4.5 million and 7.4 million TRX wash traded daily. This scheme required a significant supply of TRX, which Sun allegedly provided.

As alleged, Sun also sold TRX into the secondary market, generating proceeds of $31 million from illegal, unregistered offers and sales of the token.

“This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure,” said SEC Chair Gary Gensler.

“As alleged, Sun and his companies not only targeted U.S. investors in their unregistered offers and sales, generating millions in illegal proceeds at the expense of investors, but they also coordinated wash trading on an unregistered trading platform to create the misleading appearance of active trading in TRX. Sun further induced investors to purchase TRX and BTT by orchestrating a promotional campaign in which he and his celebrity promoters hid the fact that the celebrities were paid for their tweets.”

“While we’re neutral about the technologies at issue, we’re anything but neutral when it comes to investor protection,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. …”
 
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