TRON is once again embroiled in securities controversy

Original title: TRON is once again embroiled in securities controversy

On January 5, news that TRON (TRX) was being investigated by U.S. regulators for violating securities laws spread in the domestic cryptocurrency circle.

The news comes from Adam Cochran, a partner at Cinneamhain Ventures, an overseas crypto asset investment institution. He posted a court document from New York on Twitter, saying that Tron may be under investigation by US regulators or may be related to Bittorrent and Poloniex.

In fact, this court document is an indictment filed with the Southern District Court of New York in April 2020. The plaintiffs are two residents from Chicago, Illinois and Houston, Texas, accusing the TRON Foundation and its founding members, including Justin Sun, of securities fraud and violating U.S. federal and state securities laws.

In December 2020, the Tron Foundation filed a motion to dismiss the case on the grounds that "the case has no relevance to jurisdiction" and "does not involve direct sales."

At present, there has been no new progress in the public proceedings of the local court.

This case, which was filed last spring, finally attracted public attention again when the crypto asset market ushered in a bull run. This also coincided with the time when another project, Ripple, was sued by the US Department of Justice.

Justin Sun, the founder of TRON, tried to appease the outside world by saying that he had not sold TRX to any American. However, the price of TRX still fell sharply. According to AICoin data, from 8 am on January 5, TRX fell from $0.0309 to $0.027 in two hours, a drop of 12.9%.

TRON is sued in the US, causing another storm

On the morning of January 5, Adam Cochran, partner of Cinneamhain Ventures, posted a court document suing TRON on Twitter. The news that "TRON may be under investigation by US regulators" has attracted attention in the domestic cryptocurrency circle.

Not long ago, on December 26, Adam Cochran released the news before Coinbase removed Ripple (XRP) trading. He also announced to the public, "You will definitely like the next exclusive news I am working on this week." At that time, there was speculation that TRX might be the next project to be targeted by US regulators after XRP.

In fact, the court document about Tron that Adam posted was an indictment, which originated from the official website of the United States District Court for the Southern District of New York and was signed on April 3, 2020.

Two US TRX investors sue TRON Foundation and Justin Sun

The plaintiffs in the lawsuit are Alexander Clifford, a resident of Chicago, Illinois, and Chase Williams, a resident of Houston, Texas. They claimed that they purchased TRX, a TRON token, and later believed that TRX was a security, but TRON did not register it as a security with the SEC and was not eligible for exemption from registration requirements, misleading investors to buy TRX, in violation of U.S. federal and state securities laws.

The two plaintiffs sued the Tron Foundation, project founder Justin Sun and former CTO Lucien Chen in their individual capacity or on behalf of all other similarly situated persons, seeking to recover the consideration paid for TRX tokens, interest, and attorney fees.

Last December, the Tron Foundation filed a motion to dismiss the case, arguing that it was not related to jurisdiction and did not involve direct sales.

At present, there has been no new developments from the court's public proceedings.

But Adam Cochran believes that although there is no clear evidence, the TRON Foundation is likely to be the focus of US regulatory actions. TRON previously claimed that when Binance accepted US users, US securities laws did not apply to secondary transactions that occurred on Binance. Neither TRON nor Binance made efforts to stop these users, while promoting TRX to them. "But the root of this issue (being investigated) seems to revolve around Poloniex and BitTorrent, two US entities associated with Justin Sun."

The price of TRX may be affected by the above news. According to AICoin data, from 8:00 am on January 5, TRX fell from $0.0309 to $0.027 in two hours, a drop of 12.9%.

The plaintiff claimed that TRX was a security, and Sun Yuchen denied it.

The core content of the lawsuit filed by the two American residents is that they believe TRX is a security, but the TRON white paper, Justin Sun, Chen Zhiqiang and others did not explain the security attributes of TRX to investors when they publicly disclosed information, and they also deliberately avoided this part of the information, misleading investors to buy TRX.

In the U.S. regulatory system, the standard for determining whether a crypto asset is a security usually depends on the Howey Test score. The higher the score, the more likely it is to be considered a security.

The Howey Test's security scoring is primarily related to four factors: capital investment, investment in a common cause, expectation of profit, and no direct involvement in operations but profit solely through the efforts of the promoter or a third party.

The plaintiffs believe that TRX tokens are securities because they attract investment and give investors an expectation of return. Under federal and state securities laws, it is necessary to clarify whether TRX tokens are securities at the time of issuance. However, the plaintiffs believe that TRON analogizes TRX to tokens such as Bitcoin and Ethereum, as if TRX is not a security, and has not filed a registration statement with the SEC. TRON's white paper discloses the risks inherent in these investments to investors over the age of 18, including their speculative nature.

The plaintiffs cited EOS as an example, saying that from June 2017 to June 2018, EOS's parent company Block.ONE issued EOS tokens and sold unregistered assets, which also violated the Securities Act. They believe that EOS is functionally the same as TRX, and neither token explains its securities attributes to investors. However, under the SEC's new securities framework issued in April 2019, Block.ONE was fined $24 million in September of that year because the SEC also determined that EOS is a security. The plaintiffs believe that this has the same effect on TRX.

After the news broke, Tron founder Justin Sun also publicly responded in the user community that the Tron Foundation is registered in Singapore, not in the United States, and that no TRX was sold to any Americans during the Tron ICO. Tron was evaluated as a non-security by an internationally renowned law firm and a corresponding legal opinion was issued.

In addition, he also stated that TRON was listed on a compliant trading platform in the United States only after being evaluated and issued a legal opinion by a major international firm, and that TRX was not sold directly or indirectly to any U.S. citizen.

DeFi is weak due to internal problems and new chains are facing strong rivals from outside.

In the fourth quarter of 2020, regulators paid special attention to the cryptocurrency market, and related exchanges and project parties were visited by US regulators.

In early October last year, BitMEX, a giant crypto asset contract trading platform, was sued by the U.S. Department of Justice and the U.S. Commodity Futures Trading Commission (CFTC) for anti-money laundering. Some executives were taken away for investigation, and other executives were reported to have resigned.

On December 23, the U.S. Securities and Exchange Commission (SEC) announced a lawsuit against Ripple and its CEO and co-founder, accusing them of raising more than $1.3 billion through an unregistered, ongoing digital asset securities offering. The incident directly caused the price of XRP to halve. The U.S. compliant exchange Coinbase removed XRP from its listing, and Grayscale Trust liquidated the asset.

The aftershocks of XRP on the crypto asset market are still there, and TRX is caught up in speculation of being "investigated". Although Justin Sun came out to clarify, it still failed to stop the price of the currency from falling.

In fact, TRON, as the top currency in the last bull market, is not much better than EOS, another stablecoin, in this round of rising market. According to Feixiaohao data, as of 3 pm on January 5, TRX was temporarily reported at $0.0276, with a circulating market value of $2.003 billion, and its ranking dropped from the top ten to 16th. TRX has increased a lot in the past year, reaching 109%, but it is still far behind mainstream assets such as BTC, ETH, and LTC.

In the hot DeFi market last year, Tron also made a lot of noise and launched DeFi protocols such as SUN (Sun Coin) and Justswap. It seized the market's hot spots and created a wave of momentum in a short period of time, but failed to show sustained popularity in the market.

As of 5:00 pm on January 5, the total locked value (TVL) of DeFi on TRON was only 92.38 million. At the same time, the TVL of DeFi on Ethereum was 25.52 billion US dollars, and that on EOS was 273 million US dollars. Compared with Ethereum, TRON's DeFi ecosystem is still very small.

However, Sun Yuchen has never stopped shouting orders for Tron. On January 4, he was still cheering up the community, saying that Tron would go all in and work hard. At 8 pm that night, he posted a letter of appointment on Twitter, saying that China Information Industry Magazine had hired him as a member of the editorial board.

Justin Sun posted his employment letter on Twitter

Public information shows that the China Information Industry magazine is managed by the National Development and Reform Commission and sponsored by the China Information Association. Sun Yuchen, who wants to "go all out" in 2021, first became an editorial board member of the magazine. However, this move was also interpreted by domestic users as whitewashing by relying on official endorsements.

Compared to these false reputations, users and investors holding TRX are more looking forward to Sun Yuchen leading TRON to make a difference in the crypto asset market. After all, the bull market is here, DeFi has started a new round of growth, and the new blockchain infrastructure Polkadot is gaining popularity. Whether the old public chain TRON, EOS and other projects can keep up with the emerging forces is more important to investors.