YouTuber-turned-pro-boxer Jake Paul and seven other celebrities were charged by the Securities and Exchange Commission for promoting a crypto asset without disclosing they were paid to do so, according to a Wednesday press release from the federal regulating organization.
According to the SEC, Paul promoted a virtual coin in exchange for crypto assets valued at $25,019 while he had 3.8 million Twitter followers. Promotion of that nature, without proper disclosure, is illegal. To support this, the SEC's filing cited Section 17(b) of the Securities Act.
Paul promoted Tronix (TRX) tokens, securities offered by Tron Foundation Limited. The company is owned by Yuchen "Justin" Sun. The SEC cited a now-deleted tweet from Paul on Feb. 12, 2021, which mentioned Sun and included a TRX hashtag and rocket ship emoji. He was replying to rapper Lil Yachty, who was also charged.
Lil Yachty is not the only musician to appear in the case, as Soulja Boy, Ne-Yo, Akon and Austin Mahone were also charged along with actress Lindsay Lohan and adult film star Kendra Lust.
According to the release, six of the eight celebrities including Paul, reached a settlement with the SEC.
The portion detailing the settlement reads:
"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."
With that wording, it's unclear whether Paul agreed to pay the listed amount, or those six celebrities' settlements combined to that total.
In the release, the SEC also announced charges against Sun and three of his companies "for the unregistered offer and sale of crypto asset securities," including BitTorrent (BTT). The SEC claimed Sun and his companies orchestrated a "scheme to pay celebrities to tout TRX and BTT without disclosing their compensation." It also alleged Sun also sold TRX into the secondary market, "generating proceeds of $31 million from illegal, unregistered offers and sales of the token."
In addition to the settlement agreement, Paul also took the first loss of his boxing career recently. He was defeated by Tommy Fury via split decision in the final round of the eight-round bout in Riyadh, Saudi Arabia.
SEC chairman Gary Gensler referred to the case as an example of sorts. “This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure,” he said in the release.
The case comes months after Tampa Bay Buccaneers quarterback Tom Brady and multiple other big-name sports celebrities, including Stephen Curry and Naomi Osaka, were named as defendants in a class-action crypto lawsuit filed in Florida in November.
That lawsuit alleges FTX founder Bankman-Fried and those celebrities promoted and encouraged others to invest in FTX in a "fraudulent scheme."