Companies often hire celebrities to promote their goods and services. It is an efficient and lucrative way to generate attention and interest in brands. Keep in mind that individuals who promote and tout such products and services are subject to applicable marketing regulations. This is true in all industries, including in the securities space. The U.S. Securities and Exchange Commission (“SEC”) has unapologetically pursuedcompanies, celebrities and other individuals who engage in cryptocurrency marketing in violation of federal laws. Specifically, these statutory provisions prohibit celebrities and other individuals from touting financial assets without properly disclosing their endorsement relationships. According to the SEC, “[t]hese endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement.”
NBA Hall of Famer Paul Pierce Settles Cryptocurrency Marketing Violations
The SEC charged Paul Pierce with cryptocurrency marketing violations for touting EMAX tokens offered and sold by EthereumMax, without: 1) disclosing the payment he received for his promotional activities; and 2) for making false and misleading statements about the EMAX cryptocurrency. The specific SEC allegations detail that Pierce used Twitter to promote the EMAX tokens and included a screenshot of an account which showed large holdings and profits, without disclosing that his own personal EMAX holdings were far less significant. The SEC also alleged that one of his “tweets” included a link to the EhtereumMax website with instructions on how to purchase EMAX tokens. Although the former Celtics star did not admit or deny the claims, he agreed to settle the charges and pay a hefty $1.409 million in combined penalties, disgorgement, and interest.
Deceptive Marketing Laws Include FTC Regulations
In addition to financial product marketing laws (SEC regulations), there are additional state and federal regulationsthat govern the ways in which businesses may lawfully promotetheir brands. For example, Section 5 of the Federal Trade Commission Act (“FTC Act”) prohibits ‘‘unfair or deceptive acts or practices in or affecting commerce.’’ The FTC has described deceptive activity as that which “involve[es] a material representation, omission or practice that is likely to mislead a consumer acting reasonably in the circumstances.”
Lessons From the Paul Pierce Cryptocurrency Marketing Case
The SEC, FTC, and state attorneys general will investigate and sue companies, individuals, and celebrities that use marketing techniques that are likely to mislead consumers. While it seems like a simple concept, the need for transparency in marketing is critical and oftentimes complicated. Cryptocurrency marketing in violation of SEC regulations will most certainly result in regulatory action. Just recently, the SEC charged Kim Kardashian with similar violations, alleging that she failed tosufficiently disclose her $250,000 deal to hype EMAX tokens onInstagram.
To avoid regulatory investigation and litigation, businessesshould understand the nuances of the laws that apply to their marketing practices. The SEC’s action against Paul Pierce is yet another example of how celebrities that engage in allegedly deceptive and misleading cryptocurrency marketing practices may find themselves on the wrong side of the law.
The material contained herein is provided for information 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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