Boxer Floyd Mayweather Jr. and the music producer DJ Khaled will be a few coins lighter in their respective wallets, after being fined $767,500 by the SEC for “failing to disclose payments they received for promoting investments in Initial Coin Offerings” via Twitter and Instagram. Both men agreed to pay their fines and also agreed not to promote any ICOs or securities for the next three years, two years for Khaled. Luckily for both celebrities, there were no jail sentences meted out for their apparent misdeeds.
These celebrity fine agreements were a side issue related to the ill-fated ICO, Centra Tech. Earlier this year, the SEC shut down Centra and charged its co-founders with securities violations in connection with their $32 million fundraising. The SEC has been clamping down on ICOs in an effort to end the rampant fraud that has pervaded the ICO space. In its recent annual report, SEC officials have also stated that they are devoting material resources in 2019 to attack the criminals that have fleeced millions from investors in the United States using illegitimate ICOs. Global estimates are that as much as 85% of the $20 billion-plus in fundraises over the last two years may be scams.
This is the first time that the SEC has gone after celebrities, specifically celebrities that have been paid for their endorsements and did not disclose that fact in the promotional social media pieces. Mayweather was known for his famous tweet: “You can call me Floyd Crypto Mayweather from now on”, while Khaled had hailed Centra Tech on social media as a “game changer”. Mayweather had actually supported three separate Initial Coin Offerings, including Centra, while Khaled had only worked with Centra.
These two celebrities are not the only ones that have helped to promote digital coin systems in the past few years. The approach takes advantage of the celebrities star appeal and the fact that each has a large social media following. It is unclear if any of the other celebrities were paid for their endorsements, and, if they had been, whether it was disclosed in the small print, so to speak. A few notables:
The SEC recently put out a bulletin warning investors to be wary of the risk of celebrity endorsements and to complete their own due diligence before proceeding. It also noted that, “Celebrities, like anyone else, can be lured into participating (even unknowingly) in a fraudulent scheme. Also, celebrities are sometimes linked to products or services without their consent so the celebrity may not even have endorsed the investment.”
Steven Peikin, SEC Enforcement Division co-director, also added that “Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements. Social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds.”