[HN Gopher] SEC charges crypto entrepreneur Justin Sun and his c... ___________________________________________________________________ SEC charges crypto entrepreneur Justin Sun and his companies for fraud Author : VagueMag Score : 153 points Date : 2023-03-22 19:57 UTC (3 hours ago) (HTM) web link (www.sec.gov) (TXT) w3m dump (www.sec.gov) | code_biologist wrote: | There's currently US congressional hearings going on about | cryptocurrency regulation. This is admittedly from a very pro- | crypto source, but great video overview of the most recent | testimony: https://www.youtube.com/watch?v=xohK2W07F0Q | | I'm very very glad for any consumer protection, but it does come | across like the SEC is setting up a narrative of crypto risk as a | reason to repress transactions between it and the traditional | banking system. | smackeyacky wrote: | Is this one of those "self aware wolf" situations? | cal5k wrote: | The revelation that FDIC (allegedly) forced Signature's | acquirer to divest of cash holdings from crypto companies is | another bit of evidence that anti-crypto regulatory activism is | a very real thing. | | Which is quite silly because crypto is still small peanuts | compared to the bank failures that happened recently. | ForHackernews wrote: | You mean the bank failures where good regulations and | government intervention mean that depositors aren't out a | cent? _Those_ bank failures? | | I'm not sure this is quite the example you think it is... | paxys wrote: | I don't see the "anti-crypto regulatory activism" you are | calling out. If FDIC is bailing out a bank and its | depositors, that too well beyond its insurance limit, it | absolutely has to ensure that the bank is not going to | continue to gamble with customer funds. | | Heck "no customer deposits going into crypto" should be a | hard requirement to be eligible for FDIC insurance. | vkou wrote: | Being a crypto-focused bank carries most of the same risks as | being a startup-focused bank (But worse), and in case anyone | missed the news the other week, one of those just exploded | with what could have been a much bigger hole on its balance | sheet had the FDIC waited. | pavlov wrote: | Setting up a narrative? Did the SEC orchestrate FTX and all the | other crypto failures? | | They're finally taking steps to actively protect retail | investors. This should have happened after the ICO boom of | 2017. Nothing of value would have been lost if crypto had been | unbanked the past five years. | cypress66 wrote: | The kind of protection people want: this exchange is not | going to steal my funds | | The kind of "protection" regulators want: you can't buy or | use crypto | pavlov wrote: | The sad truth is that all the exchanges are going to steal | your funds. Some of them just go about it in more | sophisticated ways, like Coinbase paying out billions in | stock-based compensation while losing money. | piqi wrote: | > The sad truth is that all the exchanges are going to | steal your funds. | | > like Coinbase paying out billions in stock-based | compensation while losing money | | I really wish people put more effort into arguing their | side in these discussions. Your point is absurd and lazy. | | [public company] pays some % of employee salary in stock | >> while "losing money" >> ??? >> customer's property is | stolen. | | > Did the SEC orchestrate FTX and all the other crypto | failures | | FTX's problems were amplified by being unregulated, | outside the US. The overwhelming majority were not US | residents. The SEC didn't have jurisdiction over their | International firm. The US version of FTX was handled | very differently, but supposedly co-mingled funds. They | FAILED to protect US residents by not shutting down the | US version. They could have gave warnings about the | international firm, instead of working so closely with | FTX's founder. | | As usual, lots of hand-waving from crypto detractors. You | have a clear bias. Sadly, when enough people share a | bias, truth and facts are irrelevant. There's a lot to | criticize about in crypto. No need to make up irrelevant | associations. | pavlov wrote: | When Coinbase files for bankruptcy, crypto deposits will | be at the back of the line. They are unsecured creditors. | The company itself says that: https://www.bloomberg.com/n | ews/articles/2022-05-11/coinbase-... | | Coinbase executives will have enjoyed years of massive | pay days selling stock pumped up with customer money. The | customers who assumed the money in their accounts is | protected like with a bank will be wiped out. | piqi wrote: | > When Coinbase files for bankruptcy, crypto deposits | will be at the back of the line. They are unsecured | creditors. | | I'm aware. This has nothing to do with your point about | "stealing" deposits like other exchanges (e.g. FTX), and | is irrelevant to stock-based compensation. It contributes | nothing to the discussion. More noise to encourage others | to feel safe that their bias is well liked. | | > Coinbase executives will have enjoyed years of massive | pay days selling stock | | More irrelevant and false points. The company has only | been public since April 2021. Not even two years. You are | attempting to frame them as fat cat wall street types | purposefully driving the company into the ground at | customers' expense. | | Somehow you extrapolate this to "all exchanges" when | Coinbase is the only publicly-traded exchange. | | remember that Coinbase was audited by the SEC before | going public, and is one of the oldest exchanges. If any | exchange is safe, it's Coinbase. The problem is the SEC | doesn't give clear direction. | | Anybody that feels the SEC will "protect" them by forcing | coinbase into bankruptcy is welcome to move their assets | on-chain. Many people advocate for that. | | Again, I'm highlighting how lazy and absurd your argument | is. | pavlov wrote: | It doesn't seem like you know what your argument is. | | _> "If any exchange is safe, it 's Coinbase"_ | | Ok, so other exchanges are worse. | | _> "Somehow you extrapolate this to 'all exchanges'"_ | | You just told me the other exchanges are worse. | | _> "You are attempting to frame them as fat cat wall | street types purposefully driving the company into the | ground at customers ' expense"_ | | It doesn't have to be purposeful. At the rate Coinbase is | piling up losses, it will eventually be bankrupt, and | executives will have accumulated billions while customers | will lose billions. The SEC isn't going to force a | bankruptcy; Coinbase's own poor management seems to be | doing it. | | _> "... is welcome to move their assets on-chain. Many | people advocate for that."_ | | Oh, so you agree with me that nobody should use crypto | exchanges in the first place. Because they will lose your | money. | cypress66 wrote: | Thus the regulation so exchanges have to prove they have | all the funds and aren't doing anything funny with it... | stanleydrew wrote: | There are a number of obvious counterexamples to this, | Coinbase's continued existence being just one. | Osiris wrote: | They just got a Wells notice: | | https://www.reuters.com/legal/coinbase-issued-wells- | notice-b... | greenyoda wrote: | HN disucssion of that: | https://news.ycombinator.com/item?id=35267407 | pessimizer wrote: | The kind of protection people want: their in high-risk | investments being protected as if they were in low-risk | investments. They also want to eat cakes but still have | those same cakes. | kerblang wrote: | Whoa celebrity charges too. You just knew Jake Paul had his hand | in so much bad crypto he was gonna get nailed eventually. I | suppose Coffeezilla will struggle to suppress the glee. | | Edit: | | > With the exception of Cortez Way and Mahone, the celebrities | charged today 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 | | Meh ok pfft | yunohn wrote: | > without admitting or denying the SEC's findings | | I've never understood why this loophole of "non admission of | guilt" exists in our legal systems. | CaptainNegative wrote: | It allows one to settle a civil manner without self- | incriminating if the same act is also criminal. This grants | more flexibility to civil procedure without overstepping | fifth amendment bounds. | pessimizer wrote: | > This grants more flexibility | | Do we need that flexibility? The flexibility to extract a | settlement from guilty people without an acknowledgement of | guilt seems to be a worthless prize unless we're enforcing | legislation for revenue's sake. I wouldn't complain about | that just because it seems venal, I really find it silly | because the amount of revenue is minuscule irt the budget. | themitigating wrote: | What's the value of marking someone as guilty? The fine | is a punishment. | dragonwriter wrote: | It exists in the civil (but not criminal) justice system so | that civil disputes can be resolved without the parties | making admissions that could be used against them in separate | litigation (including, especially, criminal process, with its | higher standard of proof and potentially more severe personal | consequences.) | | Given the overlap between torts and crimes, it would be much | longer and more painful to resolve tort cases if the settling | part might have to admit an act that was also a crime. | schoen wrote: | In some jurisdictions, it also exists, partly for a similar | reason, in the criminal justice system. | | https://en.wikipedia.org/wiki/Nolo_contendere | paulpauper wrote: | I hate it too. It allows people to engage in borderline fraud | knowing that if they get caught they pay a fine and keep some | of the ill-gotten gains anyway. Like a get out of jail free | card. Worst comes to worse, you settle and admit no | wrongdoing and pay fine. Best case scenario, you avoid the | dragnet and nothing happen, so you keep scamming. Either way, | you avoid jail. | adoxyz wrote: | To protect the wealthy. | | Pay a small fine that represents a tiny portion of your ill- | gotten gains and move on without any repercussions. | Alupis wrote: | > To protect the wealthy. | | Hardly. | | The SEC cannot say you are guilty without proving it within | the bounds of the legal system. This "non admission of | guilt" is a way to sidestep a lengthy, costly legal process | and get a result for the impacted parties sooner rather | than much _much_ later. | joecool1029 wrote: | Saves time and money for all involved parties. It's | literally like a parking ticket in this sector. Years | back I had clients who were penny stock promoters and | every one of their sites had to have a disclaimer which | if you clicked and read listed how much and from who they | were paid for each promotion. That's all it would have | taken for them to avoid this fine even as grimy as the | industry is. | dragonwriter wrote: | > The SEC cannot say you are guilty | | Pretty much ends there. The SEC can say you are civilly | liable, and they can assess fines in some situations and | initiate civil litigation in others based on that. | | But if they think you are guilty, that's an issue they | hand off to the Justice Department. | Alupis wrote: | We can split hairs all day regarding exactly who brings | charges or whatever - but it doesn't matter. In basic | terms: | | If the SEC says you are liable or guilty in any way for | anything, you can contest it via the legal system. That's | what the legal system is for... | | Again, this "non admission of guilt" sidesteps | _everything_ and cuts straight to the end result. | | In this specific case, it literally means the SEC either | felt their case wasn't strong enough to guarantee an | outcome, or litigating the case would become exceedingly | costly and unproductive - again without a guarantee of an | outcome. | | "Non admission of guilt" payments guarantee a speedy | outcome. That is the entire point. | dragonwriter wrote: | > Again, this "non admission of guilt" sidesteps | everything and cuts straight to the end result. | | It's a settlement agreement, and, yes, that's the whole | point - they resolve a situation subject to civil | litigation without litigation, but leaving the settling | party no worse off than if they had fought and had the | agreement contents instead imposed as a remedy. Requiring | admissions as part of a settlement would not do that, | settling would then in many cases be _worse_ than losing. | Alupis wrote: | We're saying the same thing, even if you write it more | elegantly than I. | dragonwriter wrote: | Yeah, sorry I kind of snapshotted the last one and | thought you were taking issue with the short-circuiting | rather than merely describing it. | pessimizer wrote: | Is SEC enforcement even revenue positive/profitable? The | "result for the impacted parties" is a pretext, | especially if we intentionally and carefully preserve the | ability to continue to reoffend in the exact same way. | themitigating wrote: | "Ok so you can either go to trial OR just be guilty now and | get punished, what a deal right?" | el_nahual wrote: | Because otherwise you force the innocent to go through a | lengthy (and expensive) investigation that is not necessary | for the guilty (who would be ok with paying a fine)! | | "I didn't do it, but I'd rather pay the fine than go to | court" is a perfectly reasonable outcome. | notahacker wrote: | Presumably for the same reason it's more efficient to let | people agree to pay parking fines up front rather than go to | the extra time and expense of court for the sake of seeing | whether they'll agree to say the word "guilty" or not. The | SEC has higher priorities than sullying the name of Lindsay | Lohan and Soulja Boy, and fining them substantially more than | they got paid is ample deterrent. | vasco wrote: | > substantially more | | I was curious, so I checked Jake Paul: | | > Respondent shall, within 20 days of the entry of this | Order, pay disgorgement of $25,019, prejudgment interest of | $1,811, and a civil money penalty in the amount of $75,057 | to the Securities and Exchange Commission | | Jake Paul was paid $25k for a tweet and was ordered to pay | back a bit over $100k. Only other restriction is he can't | be paid for anything related to crypto in the next 3 years. | Paying back the original money + 3x as fine seems | reasonable I guess. | tobyjsullivan wrote: | It's all relative, perhaps. | | It might be different if anybody believed these | celebrities were actively trying to defraud and harm | people. | | The reality is more likely that these people are | effectively human billboards. People pay them to read a | script, and they read it. Each week a different product, | different script, same deal. | | So they got suckered into reading an illegal script. They | get penalized (rightly) but it doesn't necessarily need | to be extreme. | | And now the SEC gets to show off their win using the same | billboards. | pessimizer wrote: | I'm pretty sure that the last time I paid a parking ticket, | I had the option to check a box that indicated that I was | guilty, or the option to go to court. I did not get the | option to pay the fine, but not to be recognized as guilty. | [deleted] | ljhsiung wrote: | >> The SEC simultaneously charged the following eight celebrities | for illegally touting TRX and/or BTT without disclosing that they | were compensated for doing so and the amount of their | compensation. | | * Lindsay Lohan | | * Jake Paul | | * DeAndre Cortez Way (Soulja Boy) | | * Austin Mahone | | * Michele Mason (Kendra Lust) | | * Miles Parks McCollum (Lil Yachty) | | * Shaffer Smith (Ne-Yo) | | * Aliaune Thiam (Akon) | | I had to doubletake. Never did I ever think I'd see this | permutation of celebrities in an SEC report. | hn_throwaway_99 wrote: | And a perfect snapshot for what a steaming pile of BS all this | crypto-hucksterism was in the first place. | | I admit, I don't understand humans. I'm just trying to | comprehend how anyone would think it a good idea to buy a token | because any one of these celebrities hawked it. | thefounder wrote: | It's just FOMO. You surely experienced it until now. It's | "irrational" because people make many irrational(emotional) | decisions. Sometimes it pays off to ride the wave but we all | know that most will not make it...however the potential | upside is too great to "miss" it...until you lose. | komali2 wrote: | I bet you can think of some irrational things you've done in | the last few years. I'd be curious what they might be. | | Let's see, for me... Well any time I got games in a steam | sale recently, my backlog is huge and I don't have time | anyway. Any time I spend on Twitter, I know I don't enjoy how | I feel after. Plenty of times I had irrational excuses for | why I didn't have to go to the gym on a given day. Made a | batch of really good ice cream despite trying to lose weight. | Etc. | | When I was younger I made some irrational decisions in | stocks, now I don't anymore, I think if you get burned enough | maybe that's what it takes? I too often wonder why people | seem to need to "learn the hard way." For me, if a friend | gets in a car accident, I listen to how it happened and make | sure to never repeat their mistake, triple for motorcycling. | But maybe its domain specific in that regard? Some people are | good at being more rational in some areas rather than others? | di456 wrote: | Humans have a soft spot for snake oil. Always have, always | will. | | "If it sounds too good to be true" vs "but everyone else is | doing it" | jallen_dot_dev wrote: | It's simple: they thought they could later sell it for more. | Celebrities hawking it is "bullish" because other people | (suckers) will see the hype and want to buy their bags. | Unfortunately for them, they were the suckers. | goldenkey wrote: | A lot of it is young kids or college students with | undeveloped brains and a lack of good guidance. Then a bunch | is desperate needy or greedy folks who are thinking | impulsively. | jkubicek wrote: | it's also just plain advertising. When the celebrities | listed in these charges say that they're buying NFTs, a | whole lot of people are going to see that and notice. | | The number of people that buy an NFT because Soulja Boy | bought one is probably pretty small. The number of people | who buy NFTs because "everyone else is" is much much | larger. | pavlov wrote: | Yes, in advertising terms these endorsements are not | tactical but strategic. You want to create an ambience | where people sense that everyone successful is now | getting into crypto/NFTs. That kind of diffuse group | pressure is much harder to consciously analyze than "do I | want to buy this thing because Soulja Boy told me to?" -- | and thus much more effective over time. | | Crypto seems to have been particularly powerful at | preying on women and minorities who felt like they're | missing out with mainstream finance. This kind of highly | focused influencer marketing within communities must have | been a major contributor to its uptake. | nradov wrote: | Is that really true? When I was in college some years ago I | didn't fall for any scams and few of my classmates did | either. Most of us barely had money for beer and textbooks, | so there wasn't much to scam from us in the first place. | Has the situation changed? | tmpz22 wrote: | If you're an E-list celebrity on TMZ you're a B-list on Cameo I | guess. | Animats wrote: | The last group of celebrities to get in trouble with the SEC | started with Kim Kardashian, who endorsed Etherium Max without | disclosing it was a paid endorsement. | | Then there's the whole Guy Oseary/Yuga Labs/BAYC promotion | scam.[1] That's in litigation. Short version: all those | celebrities who announced that they'd bought Bored Ape NFT's | didn't have to pay for them. | | [1] https://variety.com/2022/digital/news/bored-ape-yacht- | club-c... | miohtama wrote: | Technically Kardashian disclosed it with #ad tag, but because | it was settled outside the court, we do not know if this is | sufficient disclosure. | arthurcolle wrote: | Floyd Mayweather was also boosting Ethereum Max at Bitcoin 2021 | in Miami - When he said "maybe one day there'll be a better | crypto than BTC... like Ethereum Max" immediately the crowd | started booing him (expected, at a BTC conf), pretty funny | | I wonder how he managed to slip through! | thowland wrote: | It's not clear that the SEC has jurisdiction here; there doesn't | seem to be a bright line test deciding if crypto is a security or | a commodity. This behavior might be better regulated by the FTC | than the SEC. | arcticbull wrote: | Sure there is, it's the Howey Test and the SEC has a whole | publication on how to apply it to crypto. Fun fact, it's | probably safe to assume that any ICO is a securities offering. | [1] | | This is a case of "there is a bright line but the community | doesn't like where they painted it, so they pretend there isn't | one." | | [1] https://www.sec.gov/corpfin/framework-investment-contract- | an... | peyton wrote: | The CFTC disagrees [1]. Hardly a bright line. | | [1]: https://decrypt.co/123032/cftc-chair-says-ethereum-is-a- | comm... | arcticbull wrote: | He would say that because he wants jurisdiction. | | His argument appears to be "let's just sunk-cost our way | through instead of actually doing the correct thing." | | > "It's been listed on CFTC exchanges for quite some time, | and for that reason," said Behnam, who argued that it | creates a "direct jurisdictional hook" for the agency to | police both ETH's derivatives market and underlying market. | | Either way they're literally only talking about ETH, which | is again, clearly a security as following their framework, | nothing else has a long history of being listed on a CFTC | exchange. But I digress. | peyton wrote: | I feel like you're painting good-faith disagreement as | "community pretending there isn't a bright red line" or | "he would say that because he wants jurisdiction," so I | don't think there's more to talk about. | pessimizer wrote: | There's no basis for arguing about your feelings. Your | emotions are yours. | VagueMag wrote: | The SEC's major focus on wash trading in this complaint might | have some interesting implications for the broader crypto | ecosystem. | brutusurp wrote: | Been waiting for this since Tron was released. | [deleted] | mavu wrote: | Mhhmm, is it popcorn time yet? | [deleted] | javier123454321 wrote: | Honestly, most (if not all with the exception of bitcoin) of the | 'crypto' projects function effectively like a startup with the | coin as the stock. There are some differences from securities, | but mostly similarities. You are buying something with the hope | that the development team will deliver on promised value in the | future. This will at least clarify the regulatory landscape going | forward. | Animats wrote: | That's more like a Kickstarter. | | The number of crypto projects that ever turned into a | profitable enterprise for the investors by doing something | outside the crypto space seems to be near zero. | vasco wrote: | Is there even a single project that qualifies under those | requirements? | mjr00 wrote: | Except with a startup or a company's stock, you ostensibly care | that what the company is building or doing could potentially | have value in the future. With the crypto projects over the | past few years, it's purely been about whether or not you hop | in early enough in the pyramid to resell your tokens to a | greater fool before it collapses. | Clubber wrote: | It's like a company "Stocks, Inc" that just issues their own | stocks as a product. When you put it that way, it definitely | sounds suspect. | mjburgess wrote: | Yes: there is no product. | 1vuio0pswjnm7 wrote: | Will Signal be next. | | https://www.theverge.com/22872133/signal-cryptocurrency-paym... | stusmall wrote: | Is this the first example of someone getting charged for wash | trading in the cryptoworld? It was my understanding it was | common, but unsavory, for new tokens to do this to artificially | pump their volume up. | pwb25 wrote: | It's so funny how SEC think they can just walk around and charge | anyone in the world with some made up law | | imagine chinese SEC or egyptian SEC doing that to americans | iLoveOncall wrote: | First, all laws are made up. | | Second, the Chinese SEC or the Egyptian SEC can very well | charge Americans with whatever they want. It's just that those | Americans probably don't care enough about China or especially | Egypt to abide by the punishment they receive and would rather | not do business with those countries and never set foot in it. | | I, iLoveOncall, am hereby charging you with the crime of | idiotic comment, for which you will receive the death penalty | by ball slapping. Surrender yourself to the Republic of | iLoveOncallandia to receive your punishment. | | It's literally the same thing. | pwb25 wrote: | exactly they can on paper, but no one will care or be | expected to care. that's what the ridicolous difference is | xtracto wrote: | They can do it... it's as if Iran's government prosecutor body | charged someone living in the US of "not wearing a burka" or | whatever crazy law. They can definitely do it, and they can try | to move strings to get to them. Their success will depend on | their power to enforce it and coerce other countries to | surrender the person(s). | | It's like the news we have seen in the last days, of different | countries committing to arrest Putin for whatever crimes. | | But yeah, I agree with your overall sentiment: This is a USA | legal system/government arm (SEC) playing "world police". They | should just tag Tron and related cryptos as "sanctioned/illegal | schemes" and prosecute anyone in their country who | uses/operates them. Anything else is just meddle with other | countries' citizens. | smcl wrote: | Was this not the guy who was trying to buy Credit Suisse? | uticus wrote: | > The SEC also charged Sun and his companies with fraudulently | manipulating the secondary market for TRX through extensive wash | trading... | | 1. How is this detected by the SEC? | | 2. Why isn't this something that is easily detectable by the | average investor? | csomar wrote: | justin sun has a rather bad reputation in the crypto industry. | He was able to sustain his token during all that time, however. | MomoXenosaga wrote: | The average "investor" is a gambling addict or financially | desperate Reddit cryptocurrency poster. They don't care beyond | NUMBER GO UP and I am certain Justin Sun knows that too. | xeromal wrote: | It feels similar to those late note collectible coin programs | that people buy into. | | "Get your pristine 1950 silver eagle collection for 5000$ | before they're all sold out!" | nickff wrote: | It looks like at least some of Justin Sun's suspicious behavior | had been 'detected' by non-regulators some time ago: | https://cryptoslate.com/justin-sun-backs-ftx-debt-token-fud-... | | That was from a quick Google search, so I'm sure there are many | more accusations. It seems like the SEC has never been the | 'first' to detect a fraud, and they've frequently ignored ones | that have been pointed out to them (such as Madoff). | [deleted] | Animats wrote: | > Why isn't this something that is easily detectable by the | average investor? | | Because much crypto trading is just transactions within some | crypto exchange, and never makes it to the blockchain. | toomuchtodo wrote: | Vendors + training | | https://www.coindesk.com/business/2020/02/10/inside-chainaly... | | https://www.coindesk.com/markets/2019/07/12/irs-confirms-it-... ___________________________________________________________________ (page generated 2023-03-22 23:00 UTC)