Risk & Compliance

Celebrity Endorsements of ICOs May Be Illegal

The SEC warns that celebrities who endorse the offerings could be violating anti-touting and anti-fraud provisions of the securities laws.
Matthew HellerNovember 3, 2017
Celebrity Endorsements of ICOs May Be Illegal

Celebrities who endorse digital coin offerings may be violating U.S. securities laws, the Securities and Exchange Commission said in its latest warning about the increasingly popular funding mechanism.

Boxer Floyd Mayweather, actor Jamie Foxx, and socialite Paris Hilton are among the celebrities who have helped fuel the boom in initial coin offerings (ICOs) or “token sales,” which have raised more than $3.2 billion this year, a 3,000% jump from last year’s total.

Mayweather “has even taken to calling himself Crypto Mayweather in social media posts, a play on his better-known nickname, Money Mayweather,” The New York Times noted.

But according to the SEC, celebrity endorsements may be unlawful if digital coins are considered securities and the celebrity does not “disclose the nature, scope, and amount of compensation received in exchange for the promotion.”

Floyd Mayweather (right)

Floyd Mayweather (right)

“A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws,” the SEC’s Enforcement Division and Office of Compliance Inspections and Examinations said Wednesday in a joint statement.

“Persons making these endorsements may also be liable for potential violations of the anti-fraud provisions of the federal securities laws, for participating in an unregistered offer and sale of securities, and for acting as unregistered brokers,” the statement added.

As the NYT reports, celebrity endorsers offer “legitimacy and attention to coin offerings that might have otherwise gone unnoticed.” Mayweather and popular rapper DJ Khaled both recently endorsed the Centra ICO, which in just a few weeks raised more than $30 million from investors around the world.

“Get yours before they sell out,” Mayweather wrote in a Facebook post. “I got mine and as usual I’m going to win big with this one!”

The SEC also recently warned investors that ICOs could be used to manipulate a company’s stock price. In July, it found that some of the coins may be considered securities subject to federal rules and obligations.

“We encourage investors to research potential investments rather than rely on paid endorsements from artists, sports figures, or other icons,” the SEC said in Wednesday’s statement.

Photo: Beckham pz10, via Wikimedia Commons, CC BY-SA 4.0