Celebrity ICO Endorsements: The Story of Floyd Mayweather and DJ Khaled
As initial coin offerings (ICOs) are becoming a more and more popular method of raising money in the start-up space, American celebrities have boarded the crypto-craze train. Not to say that there is anything wrong with this — unless the ICO that one is promoting is a fraudulent enterprise, with its sole purpose to scam the investors.
That was the case with Centra Tech, masterminded by Sohrab “Sam” Sharma and Robert Farkas. The extent of dishonesty on the part of the company, as uncovered by the U.S. Securities and Exchange Commission (SEC), was staggering. The operators were, inter alia, supposed to falsify the credentials of its executives and fake a cooperation with Visa and Mastercard. As reported in the complaint filed: “Contrary to Defendants’ false representations: (i) Centra did not have any “partnership” or other relationship with Visa, Mastercard, or The Bancorp; (ii) “Michael Edwards” and other Centra executives pictured in its promotional materials were fictional, and the photographs used to identify the fictional “executives” were photos taken from the internet or pictures of Defendants’ relatives.”
Boxer Floyd Mayweather and record label executive DJ Khaled both endorsed Centra’s ICO on social media. Mayweather, for instance, tweeted that: “Centra’s (CTR) ICO starts in a few hours. Get yours before they sell out, I got mine,” a statement that would most likely convince at least some of his fans to invest their money into the project.
In November of 2017, the SEC produced a public document on “Celebrity Backed ICOs,” confirming that celebrities taking part in coin-touting must disclose the scope of compensation received in exchange for the promotion. Moreover, a failure to disclose this kind of information should be thought of as a violation of the anti-touting provisions of the federal securities laws.
How was the situation resolved? In November 2018, the SEC announced settled charges against the two celebrities. The agency found that Mayweather was paid a whopping $100,000 for his endorsements; this value shows the power of social media, as all the boxer was obliged to do, was to publish a few posts on social media, most notably Twitter and Instagram. The SEC’s reaction was swift and harsh — hopefully setting a precedent for future cases of this sort. Mayweather, for instance, agreed to pay around $614,775 in fines: in disgorgement, penalty, and prejudgment interest. What is more, both celebrities were banned from promoting securities online for 3 and 2 years respectively.
Fraudulent ICOs are problematic and celebrities who use their platforms to promote such projects are not blameless. Some can say that individual responsibility should triumph: if someone invests in a coin without doing much research, is it not their fault? After all, it is common knowledge that most cryptocurrencies are highly volatile in nature. Perhaps, the situation is different when fraud is involved. Celebrities advertise hundreds of different products every day and are paid extortionate amounts of money to do so; the least they can do is ensure that the companies they make business with are legitimate.
