Last Friday, November 20th, Boxer Floyd “Money” Mayweather and Musical Artist DJ Khaled were charged by the Securities and Exchange Commission (SEC) for not disclosing payments made to them for the promotion of ICOs. Mayweather received $300,000 from three different ICO issuers and DJ Khaled received $50,000. Both could have avoided charges by marking their social media promotion as “sponsored,” but instead Mayweather will pay over $600,000 and DJ Khaled over $150,000 to settle the charges. They both may not promote any kind of financial security offering for the next two years (and Mayweather a third year).
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.”
Celebrities 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 aren’t really any consumer Blockchain products on the market, unless you count 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. However, publishers will still need to designate their posts as “sponsored” due to comply with the Federal Trade Commission (FTC) Endorsement Guides.
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