Justin Sun’s Extensive US Travel Gave Sway to SEC’s Lawsuit

The United States (US) Securities and Exchange Commission (SEC) has amended its lawsuit, originally filed in March 2023 against Tron founder Justin Sun, a Chinese-born Grenadian citizen, alleging that his extensive travels within the country confer jurisdiction.

In the 17 April amended complaint submitted to a Manhattan federal court, the regulator contends it holds "personal jurisdiction" over Justin, Tron, and two other affiliated entities, as they purposefully directed actions towards the US.

He purportedly spent over 380 days in the US between 2017 and 2019, visiting New York City, Boston, and San Francisco on business trips linked to the Tron Foundation, the BitTorrent Foundation, and Rainberry—entities identified in the suit as Justin's "alter ego" firms.

The updated document added:

"The Court has personal jurisdiction over Defendants because, through their conduct alleged herein, they purposefully took actions in and directed toward the United States."

The SEC elaborated:

“Specifically, Sun spent more than 80 days in the United States in 2017, more than 120 days in the United States in 2018, and approximately 180 days in the United States in 2019. During Sun's business trips to the United States in 2019, he spent time in various cities, including New York City, Boston, Massachusetts, and San Francisco."

Unlawful Sale of Unregistered Securities & Manipulative Wash Trading

Reiterating claims from its initial lawsuit, the SEC alleges that Sun and his businesses unlawfully sold unregistered securities through Tron and BitTorrent (BTT) tokens and engaged in manipulative wash trading.

The SEC asserts that TRX and BTT were marketed and sold to consumers and investors within the US.

It also stated that:

"Based on Sun's actions and statements, a reasonable investor considering whether to purchase or sell TRX or BTT would see Sun as the face of the Tron ecosystem, TRX, and BTT, and little, if any, meaningful distinction among the Tron Foundation, the BitTorrent Foundation, and Rainberry. With respect to all of his conduct alleged herein, Sun acted intentionally or recklessly."

As part of its argument for jurisdiction, the Commission highlights that Justin, a non-US citizen, conducted a livestream from the San Francisco office promoting the Tron ecosystem while extensively traveling to the US during the promotion and sale of TRX and BTT.

The complaint by SEC claims that:

“During the livestream, Sun explained that BTT would benefit TRX holders because 'the current Tron community' would be allocated with BTT, meaning that TRX holders would be 'entitled’ to receive 'the BTT airdrop.' Sun stated that, because of the relationship between TRX and BTT, 'the TRX community [was] tied with the BTT community."

Celebrities Charged for Alleged TRX and BTT Promotion

The SEC has levied charges against eight celebrities, among them actress Lindsay Lohan and media personality Jake Paul, for allegedly promoting TRX and BTT without disclosing their financial compensation.

Last year, both opted to settle the charges with the SEC without admitting or denying the findings.

However, singers Austin Mahone and DeAndre Cortez Way, known as Soulja Boy, remain listed in the amended complaint.

SEC Chair Gary Gensler pointed out in a statement:

“This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure."

Justin's Legal Team Claims SEC's Lawsuit Went Too Far

The SEC's amended filing rebuts arguments made by Justin's legal team in a motion to dismiss earlier this year, contending that the SEC's claims fell outside its regulatory scope and failed to establish personal jurisdiction over each foreign defendant for each claim.

The memo to the District Court of the Southern District of New York said:

"The SEC is not a worldwide regulator. Its efforts to leverage highly attenuated contacts to the United States, to extend US securities laws to cover predominantly foreign conduct, go too far and should be rejected."

Justin had sought to dismiss the lawsuit by contending that the SEC had overreached its authority by applying US securities laws to predominantly foreign activities.

He asserted that neither he nor the Singapore-based Tron Foundation fell under the SEC's jurisdiction.

He argued that the TRX and BTT tokens were exclusively sold overseas, with deliberate measures taken to sidestep the US market.

He further emphasized that the SEC had not accused the tokens of being initially offered or sold to any US residents.

SEC Chair Gary Gensler had expressed at that time that:

"Sun and his companies not only targeted US investors ... but they also coordinated wash trading on an unregistered trading platform ... "

The defendants, including Justin, Tron Foundation, BitTorrent Foundation, and Rainberry, contended that even if personal jurisdiction over the foreign defendants was established, there were numerous compelling reasons why the claims should still fail.

Rainberry, registered in California, did not challenge the court's jurisdiction but instead sought dismissal on other grounds, including the assertion that the defendants were not provided with fair notice.

The filing noted that:

"There was no fair notice that the SEC would attempt to pursue claims like those alleged here – reaching global contests and giveaways, free airdrops, and secondary trading in tokens (issued overseas, years earlier) on a developing blockchain, with few specific ties to the United States."

Another cited reason is the invocation of the major questions doctrine, a legal precedent designed to restrict government overreach by stipulating that Congress establishes the regulations that agencies like the SEC must adhere to.

This suggests that the action may have been premature, raising questions about the regulatory framework within which the SEC operates.