Celebrity cryptocurrency endorsements are entering the mainstream, and the SEC is keeping a closer eye on proceedings.
As the global interest in cryptocurrencies such as bitcoin and ethereum sees a sharp spike, there have been instances of celebrities such as boxer Floyd Mayweather, DJ Khaled and Paris Hilton endorsing various initial coin offerings (ICOs) on their social media platforms.
ICOs have been severely restricted by both Chinese and South Korean authorities, with the Chinese government attempting to rein in what it views as excessive speculation sparked by bitcoin and other cryptocurrencies.
Questioning celebrity ICO endorsements
On 1 November, the US Securities and Exchange Commission (SEC) delivered a statement, commenting on the celebrity endorsements of ICOs and questioning the legality of the promotions. “These 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.
“The SEC’s Enforcement Division and Office of Compliance Inspections and Examinations encourage investors to be wary of investment opportunities that sound too good to be true. We encourage investors to research potential investments rather than rely on paid endorsements from artists, sports figures or other icons.”
— DJ KHALED (@djkhaled) October 27, 2017
— Floyd Mayweather (@FloydMayweather) September 18, 2017
The SEC also warned that the virtual tokens or coins sold in ICOs may be securities, and those who offer and sell those in the US need to comply with federal securities laws. By failing to disclose the nature, scope and amount of compensation received, celebrities are violating anti-touting provisions of these laws, and could also be liable under anti-fraud provisions.
It warned: “Investment decisions should not be based solely on an endorsement by a promoter or other individual. Celebrities who endorse an investment often do not have sufficient expertise to ensure that the investment is appropriate and in compliance with federal securities laws.”
Do your research on ICOs
The SEC advised people to conduct thorough research when it comes to investments. If a particular celebrity recommendation is sparking interest, people should find out if it is indeed a paid promotion.
This statement from the SEC could be the beginning of fines and legal proceedings undertaken by regulators further down the line. While ethereum and bitcoin have been publicly vetted over several years, many new ICOs are selling brand new, unproven tokens, such as Lydian coin, which was endorsed by Hilton.
Peter Van Valkenburgh, director of research at Coin Center, told The New York Times: “I’m not certain that celebrity endorsements are doing a good job of bringing attention to the legitimate projects.”
Paris Hilton recently endorsed an ICO on social media. Image: adamzaja.com/Shutterstock