Bass, Berry & Sims attorneys Michael Rivera and Abby Yi authored the article “Social Media Endorsement Activities Can Prompt Securities and Exchange Commission Liability for Celebrities” published by the American Bar Association’s (ABA) Entertainment and Sports Lawyer publication. While companies routinely advertise their products via celebrity endorsements, celebrities can land themselves in hot water if they do not properly handle their paid endorsements of products subject to stiff government regulation, including initial coin offerings (ICOs) and other investment-related products that are regulated by the Securities & Exchange Commission (SEC).
In an era of cryptocurrency ubiquity, the SEC has sued celebrities, including producer DJ Khaled and boxer Floyd Mayweather, for promoting specific ICOs on their social media platforms in a manner that violated federal securities laws. Among the federal securities laws most implicated when celebrities publicly endorse investment-related products is the Anti-Touting provisions, which prohibits persons from promoting the sale of a security in return for undisclosed past or future compensation.
In addition to SEC enforcement scrutiny, celebrities who promote investments risk being sued by a disgruntled investor in a private securities lawsuit. “This risk is exacerbated when speculative investments are involved, like ICOs and penny stocks,” Michael and Abby wrote. In fact, stand-up comedian Kevin Hart and rapper T.I. were hit with a private securities fraud lawsuit in relation to their endorsement and promotion of the FLiK ICO. The plaintiffs alleged that Hart and T.I. promoted the FLiK ICO to inflate the value of FLiK tokens and thereafter sold the FLiK tokens they had owned and “disappeared from social media.”
The full article, “Social Media Endorsement Activities Can Prompt Securities and Exchange Commission Liability for Celebrities” was published in May 2021 by the ABA’s Entertainment and Sports Lawyer and is available at the link. ABA members may access the full May 2021 issue here; Michael and Abby’s article begins on page 27 of the link.