December 6, 2018
Last Thursday, the Securities and Exchange Commission (“SEC”) announced that it had settled influencer marketing charges brought against professional boxer, Floyd Mayweather Jr. (“Mayweather”), and music producer, DJ Khaled (“Khaled”), for “unlawfully touting” cryptocurrency deals involving initial coin offerings (“ICOs”). The charges against Mayweather and Khaled represent the first two cases brought by the SEC strictly for the improper marketing of ICOs.
What can you do to avoid an SEC investigation?
Influencer Marketing in the Cryptocurrency Space
In November 2017, the SEC issued a public statement warning celebrities who engage in influencer marketing that the endorsement or promotion of ICOs may be unlawful if celebrities do not disclose the nature, source, and amount of their respective compensation (paid directly or indirectly) from cryptocurrency companies in exchange for their endorsements. As we previously blogged, those engaged in influencer marketing who fail to provide the aforementioned disclosures may be in violation of the anti-touting provisions of federal securities law. In addition, individuals may face personal liability for participating in the unregistered offer and sale of securities.
In this instance, the SEC alleged that Mayweather promoted ICOs on his social media accounts without disclosing that he was paid by three different cryptocurrency companies, including payment by Centra Tech., Inc. (“Centra”) in the amount of $100,000.00. Mayweather “touted” Centra in a post on his Instagram account, stating: the ICO “starts in a few hours. Get yours before they sell out, I got mine. . . .” Similarly, Khaled, without disclosing his compensation ($50,000.00) from Centra, described the Centra ICO on his social media accounts as a “Game changer.” The promotion of Centra was particularly alarming to the SEC because, in April 2018, the SEC filed a civil action against Centra alleging that its ICO was fraudulent. The three principals from Centra were later indicted by a federal grand jury of criminal securities fraud.
The Punishment Meets the Coin
Without admitting or denying wronging, Mayweather agreed to pay a fine of $614,775.00 (in penalties, disgorgement, and interest) and Khaled agreed to pay a fine of $152,725.00 (in penalties, disgorgement, and interest). In addition, Mayweather and Khaled agreed not to promote any securities (digital or otherwise) for three years and two years respectively.
Influencer Marketing Compliance
In its role of protecting consumers from misleading and deceptive product and service advertising, to date, influencer marketing has been enforced primarily by the Federal Trade Commission. With the recent surge in popularity of cryptocurrencies and ICOs, the SEC has stepped in to regulate influencer marketing in the securities space. While most influencer marketing regulatory action has involved product/service companies or their respective ad agencies, the SEC has now demonstrated its willingness to pursue social media influencers as well. In this regulatory climate, both businesses and individual celebrity influencers operating in the social media space should be sure to speak with an experienced marketing attorney prior to commencing any influencer marketing campaign.
If you are providing or soliciting influencer endorsements, or have been contacted by a regulator concerning your marketing practices, please e-mail us at firstname.lastname@example.org or call us at (212) 246-0900.
The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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