SEC Targets Celebrities and Influencers in Next-Wave of ICO Crackdown
By: Samantha Joule Fow
The U.S. Securities and Exchange Commission (SEC) recently announced it settled yet another charge in the crypto market enforcement crackdown that it kicked off earlier this year. The charge at issue in the case - a failure to disclose payments received for promoting investments in initial coin offerings (ICOs) – was no real surprise. But what makes this case unique is that it was brought against two well-known celebrities: professional boxer Floyd Mayweather Jr. and music producer DJ Khaled.
The SEC Demands Crypto Market Transparency
Back in 2017, the SEC declared its policy directive regarding ensuring market transparency in cryptocurrency transactions. Transparency would protect ICO investors and promoters, as fraud has created endemic issues in cryptocurrency markets. Failure to disclose compensation for promotion or other forms of advertisement is a deceptive practice. It can be very easy for consumers to believe that a celebrity endorsement is an authentic recommendation rather than a paid advertisement, and this assumption can impact their purchasing decisions.
In order to make sure there is as much clarity as possible in cryptocurrency and other financial markets, financial regulators require disclosure of key information pertaining to celebrity endorsements. As a result, the SEC requires anyone promoting a digital coin or token that qualifies as a security to disclose certain pieces of information pertaining to the paid endorsement.
The SEC established that they are actively cracking down on noncompliant ICO projects, and the settlements involving the two celebrities is a clear example of how failure to comply with the SEC’s regulations and standards will be costly to anyone caught up in its dragnet.
SEC Slaps Celebrities With Huge Penalties and Fees
After an investigation, the SEC found three separate instances of undisclosed paid endorsements performed by DJ Khaled and Floyd Maryweather Jr. DJ Khaled had failed to disclose promotional payments in the amount of $50,000 from cryptocurrency company Centra Tech, and Mayweather failed to disclose promotional compensation in the amount of nearly $200,000 from two other ICO issuers
DJ Khaled and Mayweather agreed to pay disgorgement penalties and interest without admitting or denying liability. Regardless, the celebrities weren’t let off easy. DJ Khaled agreed to pay $50,000 in disgorgement, a $100,000 penalty, and almost $3,000 in interest. Altogether, this was far more than DJ Khaled had accepted in promotional payments. Similarly, Mayweather agreed to pay $300,000 in disgorgement, nearly $15,000 in interest, and a $300,000 penalty - over twice the amount Mayweather accepted in promotional payments.
These settlements stand out because they are the first of their kind. The Khaled and Mayweather cases are the SEC’s first enforcement actions involving celebrity endorsements of ICOs. As a result, it’s likely that these cases will be representative of how the SEC will handle ICO violations in the future.
SEC Puts Social Media Influencers On Notice
DJ Khaled and Floyd Mayweather may be the first celebrities to be taken on by the SEC, but rest assured they will not be the last. Earlier this year top SEC officials released a statement foreshadowing a pending ICO crackdown – and clearly, they weren’t kidding.
Motivated by its recent settlement with Mayweather and DJ Khaled, the next wave of SEC enforcement actions may very well target social media influencers who have inappropriately promoted ICOs to the general public. For the time being, anyone who has accepted payment for any cryptocurrency-related promotion and failed to properly disclose it should consider themselves on notice from the SEC.
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