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The U.S. Securities and Exchange Commission yesterday sued Chinese cryptocurrency entrepreneur Justin Sun, accusing him and other defendants of illegally selling crypto securities and scheming to artificially inflate trading volume in crypto assets, Reuters reported. Beginning around August 2017, Sun and his companies Tron Foundation Limited, BitTorrent Foundation Limited and Rainberry Inc engaged in a scheme to distribute billions of crypto assets known as Tronix (TRX) and BitTorrent (BTT), the SEC said. That included the use of "bounty programs" directing interested parties to promote the tokens on social media, including to U.S.-based investors, the SEC said. TRX and BTT were sold as securities, and thus their sale needed to be registered with the SEC, the regulator said in its complaint filed in Manhattan federal court. The agency also charged eight celebrities, including Lindsay Lohan and Jake Paul, for illegally touting those assets without disclosing they were being compensated for it. Sun also violated laws against fraud and market manipulation by orchestrating a scheme to inflate apparent trading volume in TRX in the secondary market through wash trading, the SEC said. From at least April 2018 to February 2019, he allegedly directed employees to engage in over 600,000 wash trades of TRX between two accounts he controlled. This garnered proceeds of $31 million from illegal, unregistered offers and sales of the tokens, the SEC said. The other celebrities charged were DeAndre Cortez Way (Soulja Boy), Austin Mahone, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty), Shaffer Smith (Ne-Yo) and Aliaune Thiam (Akon).

The Justice Department and the Securities and Exchange Commission are investigating the collapse of Silicon Valley Bank after the California lender was taken over by regulators last week amid a historic run on its deposits, the Wall Street Journal reported. The separate probes are in their preliminary phases and may not lead to charges or allegations of wrongdoing. Prosecutors and regulators often open investigations after financial institutions or public companies suffer big, unexpected losses. Shares in SVB Financial Group, which formerly owned the bank, fell 60% last week and have been stopped from trading since Friday. The investigations are also examining stock sales that SVB Financial’s officers made days before the bank failed. The Justice Department probe involves the department’s fraud prosecutors in Washington and San Francisco.

Federal appeals court judges in Washington, D.C., grilled the U.S. Securities and Exchange Commission on its decision to reject a proposed Bitcoin exchange-traded fund when it had earlier approved a similar product based on Bitcoin futures, Bloomberg News reported. Grayscale Investments LLC wants to convert its $14 billion Bitcoin trust, the largest investment vehicle tied to the No. 1 cryptocurrency, into an ETF. But the SEC rejected the plan in June, saying crypto markets are too ripe for fraud and manipulation. Grayscale sued, asking the DC Circuit Court to overturn a decision the company called arbitrary and discriminatory because the SEC had already approved ETFs that track Bitcoin futures. Chief Circuit Judge Sri Srinivasan, one of three on the appellate panel, asked during a hearing Tuesday why it wouldn’t always be the case that manipulation of the spot Bitcoin market would show up in futures. “It is just going to follow like the night follows the day,” Srinivasan said while questioning an SEC lawyer. Some of the judges pushed the SEC to explain why Grayscale is wrong to argue the risks of fraud and manipulation in the spot Bitcoin and Bitcoin futures markets are the same because they both rely on the same underlying pricing.

New cryptocoins that Voyager Digital Ltd. plans to issue to pay creditors in bankruptcy are actually securities that should be regulated, a lawyer with the U.S. Securities and Exchange Commission said in court on Friday, Bloomberg News reported. The comments by William Uptegrove, reflecting the views of the SEC staff, may complicate the bankrupt crypto firm’s proposal to repay creditors by issuing the digital tokens, part of a plan that also includes selling itself Binance.US, the U.S. arm of the world’s biggest crypto exchange. Uptegrove was arguing against the proposal and responding to skeptical questions about the SEC staff’s views from the judge overseeing Voyager’s bankruptcy case. The commission itself has not taken a position, the lawyer said. Uptegrove also said SEC staff have concluded that Binance.US is operating an unregulated securities exchange. Earlier Friday, a Voyager restructuring adviser testified that Binance.US is facing an investigation by the SEC. The SEC lawyer’s comments were met with a call for clarity from Binance.US. “It is regrettable that an SEC staff member would make allegations, that Binance.US and platforms like ours are operating an unregistered exchange, without specifying the assets listed on our exchange that the SEC considers to be securities,” a spokesperson for the trading services provider said. Bankruptcy Judge Michael Wiles has held two days of hearings about the Binance.US sale and the related payout plan.

Robinhood Markets Inc. said in a filing on Monday it had received an investigative subpoena in December from the U.S. Securities and Exchange Commission related to listings of cryptocurrencies, Reuters reported. The collapse of Sam Bankman-Fried's FTX was the biggest in a string of major crypto-related failures in 2022, which sparked a cryptocurrency rout and left creditors facing losses of billions of dollars. FTX filed for bankruptcy in November, which spurred an intervention from regulators around the world and dealt a blow to investor sentiment in the sector. The SEC has maintained that pre-existing securities laws also apply to digital assets and that many crypto tokens meet the definition of a security, which the crypto industry has previously criticized. Robinhood said that the subpoena it received from the SEC was regarding the supported currencies at Robinhood Crypto LLC, which is a wholly-owned subsidiary of the brokerage, as well as its custody of cryptocurrencies and other platform operations. Earlier this month, Robinhood also said it planned to repurchase its shares from Sam Bankman-Fried's Emergent Fidelity Technologies as U.S. prosecutors were in the process of seizing its shares tied to the former FTX CEO.

The U.S. Securities and Exchange Commission is not the right regulator for stablecoins, according to Jeremy Allaire, the chief executive and founder of Circle Internet Financial Ltd., Bloomberg News reported. The Boston-based firm is the issuer of the second-largest stablecoin, USD Coin, with over $42 billion in circulation. Stablecoins usually aim to maintain a one-to-one ratio with key assets such as the dollar by holding comparable reserves, and act as a crucial medium between the traditional financial system and digital assets. The tokens are used to facilitate trades, exchange assets between blockchains and serve as a haven from the volatile price swings that hit cryptocurrencies, hence the stablecoin name. The main U.S. regulator for the securities industry has tightened rules over crypto firms from exchanges, custodians and stablecoins after a series of meltdowns in the industry last year, including the algorithmic stablecoin TerraUSD. Meanwhile, the New York State Department of Financial Services ordered Paxos Trust Co. last week to stop minting Binance USD, the third-largest stablecoin, because of its relationship with exchange giant Binance. Tether is the largest stablecoin issuer.

Cryptocurrency trade association Chamber of Digital Commerce is urging a federal court to dismiss a case brought by the U.S. securities regulator against ex-Coinbase employees accused of insider trading, arguing that the case unfairly labeled several crypto assets as securities, Reuters reported. The group said in an amicus brief filed Wednesday in a district court in Washington that if the court were to proceed with the case from the U.S. Securities and Exchange Commission (SEC), it could have wide-ranging consequences for the digital asset industry and harm crypto investors. The Blockchain Association also filed an amicus brief in the case earlier this month. The SEC brought charges in July against Ishan Wahi, a former product manager at Coinbase, and his brother Nikhil Wahi, as well as their friend Sameer Ramani, accusing them of purchasing and selling at least 25 crypto assets for a profit based on insider knowledge, nine of which the agency said it had identified as securities. Federal prosecutors also brought related criminal charges against the Wahi brothers and Ramani, charging the defendants with wire fraud in the first-ever insider trading case involving cryptocurrency. Ishan Wahi pled guilty to two counts of conspiracy to commit wire fraud earlier this month.

The Securities and Exchange Commission is investigating whether stablecoins, cryptocurrencies that maintain a price of $1, are among the products that were issued in violation of investor-protection laws, the Wall Street Journal reported. SEC enforcement lawyers have told Paxos Trust Co. that regulators plan to take enforcement action over its stablecoin, BUSD, although that decision isn’t final. An SEC lawsuit over BUSD, the third-largest stablecoin by market value, would be a significant jolt to an industry that has suffered a series of shocks in recent weeks. After the failure of crypto exchange FTX, the SEC has already cut off the ability of some crypto middlemen to offer lending services that give crypto investors a way to earn interest by lending out their tokens. A lawsuit over stablecoins might not be easy for the SEC to win, according to securities lawyers, because stablecoin users don’t expect profits from owning the tokens. That motivation is one of the crucial prongs of a 1946 Supreme Court test, known as Howey, that regulators use to spot which cryptocurrencies are securities. “In your classic stablecoin…the profit is kept by the house,” said Timothy Spangler, a partner at Dechert LLP who has advised clients on the structure and formation of products tied to digital assets. Even so, he added, “Regulators are well within their jurisdiction to look under the hood.” Stablecoins are a form of cryptocurrency that make it easier to trade other digital assets. Each unit is supposed to maintain a value of $1. Traders can use stablecoins as a store of value, or use them to pay for other digital assets. Regulating them could take the SEC into the domain of overseeing payment products, something it doesn’t do. Stablecoin issuers say they are backed 1-for-1 by cash or cash equivalents such as U.S. dollars and Treasury securities. Tether Holdings Ltd., the largest stablecoin issuer, discloses most of its portfolio holdings but not all. It has invested in riskier assets such as corporate debt and has made money by lending tethers to customers, a practice it is winding down.