On November 29, 2018, the Securities and Exchange Commission (SEC) settled charges against professional boxer Floyd “Money” Mayweather Jr. and music producer DJ Khaled for failing to disclose payments they received for promoting Initial Coin Offerings (ICOs). These are the SEC’s first cases to charge touting violations involving ICOs.
Mayweather received $300,000 from three different ICO issuers and DJ Khaled received $50,000.
“These cases highlight the importance of full disclosure to investors,” said Enforcement Division Co-Director Stephanie Avakian. “With no disclosure about the payments, Mayweather and Khaled’s ICO promotions may have appeared to be unbiased, rather than paid endorsements.”
Without admitting or denying the findings, Mayweather and Khaled agreed to pay disgorgement, penalties and interest. Mayweather will pay over $600,000, while DJ Khaled will pay over $150,000. In addition, Mayweather agreed not to promote any securities, digital or otherwise, for three years, and Khaled agreed to a similar ban for two years. Mayweather also agreed to continue to cooperate with the investigation.
This penalty falls under Section 17(b) of the Securities Act of 1933, which states:
“It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.”
Celebrity endorsements can be traced back hundred of years and have been successful in selling products and marketing services. What is different about this situation is that there are very few consumer Blockchain products in market, including games like CryptoKitties.
Endorsements like those of Mayweather and DJ Khaled, paid or unpaid, should be a red flag that you should not invest in these projects.
As blockchain technology matures, it will be interesting to see how brands will use celebrities for endorsing crypto products. In addition, brand marketers will need to determine whether crypto products are a fit for a particular celebrity (i.e. relevance to their career), and whether endorsements will be effective.
Note: We are not professionals and this is not professional advice. We are not associated with any ICO, corporation, government entity. Digital currencies do not have legal tender status in any jurisdiction. Therefore, the general tax principles that apply to property transactions apply to transactions using digital currency. We are not responsible for lost money, investing is risky. Certain digital currencies may have a high probability to eventually being regulated as a security.
Editorial credit (Mayweather picture): Kathy Hutchins / Shutterstock.com