In an article published in the Spring 2019 edition of, Bass, Berry & Sims attorneys Michael Rivera and Abby Yi provided insight on the Securities and Exchange Commission’s (SEC) recent scrutiny of celebrity promotions of initial coin offerings (ICOs).
In November 2018, the SEC announced charges against Floyd Mayweather Jr. and Khaled Khaled (DJ Khaled) for improperly promoting ICOs for compensation. Cracking down on fraudulent ICOs and protecting investors from fraudulent ICO schemes is a chief priority for the SEC as ICOs have become a hot vehicle for raising capital. Over 1,200 ICOs raised an aggregate of $7.3 billion in 2018. In July 2017, the SEC warned the public that virtual tokens or coins sold in ICOs may constitute securities, and that persons involved in the offer and sale of a security must comply with the federal securities laws.
The SEC’s enforcement action against Mayweather and Khaled required both men to disgorge all the compensation they received for promoting the ICOs and to pay additional fines totaling over $600,000 for Mayweather and over $150,000 for Khaled. Celebrity endorsements of cryptocurrencies should be approached with extreme caution as the SEC is closely monitoring this area and clearly expects celebrities to now be on notice that endorsements of ICOs must comply with federal securities laws.
“To avoid the hassle of dealing with a regulatory inquiry (which can be costly and time consuming) and to protect themselves from potential liability, celebrities should consult counsel when considering an endorsement involving any type of investment in a company,” Michael and Abby said. “Counsel can provide legal advice on potential risks associated with endorsing an investment and how to mitigate those risks, including assisting in structuring a proposed endorsement deal to comply with the federal securities laws.”
The full article, “SEC Zeros in on Celebrity Promotions,” was published in the Spring 2019 issue of Today’s General Counsel and is available online.