The collapse of FTX, the world’s second-largest cryptocurrency exchange founded by Sam Bankman-Fried, has brought back under legal scrutiny the popular celebrities and sports superstars who encouraged, through advertising, hundreds of people to invest in loosely regulated terrain.
FTX’s brand, which was once valued at $32 billion in January, spent heavily to land endorsement deals with public figures such as Tom Brady, Gisele Bundchen and Steph Curry. They join the list of celebrities facing investor lawsuits for promoting cryptocurrencies.
The big question is: why does the responsibility fall on the famous and not on the company that offers the exchange of virtual currencies and hires the celebrity?
It is not the same to promote makeup or sportswear as FTX and cryptocurrencies
It is common for us to see celebrities promoting all kinds of things: from beauty products or sportswear to services such as telephony or even travel. However, promoting cryptocurrencies is more problematic as they are classified as a financial instrument by the Securities and Exchange Commission (SEC).
“The laws that regulate all this investment issue seek to protect the investor and the general public, that when buying or selling or staying in an investment, they really have all the cards on the table and truthful and impartial information,” he explained. to CNN Jacqueline Alemán, specialist in Financial Law.
All information includes revealing the financial compensation they received, directly or indirectly, from cryptocurrency companies in exchange for advertising. This is one of the main reasons why celebrities who advertise virtual currencies face legal problems.
The case of Kim Kardashian is a clear and controversial example. The influencer, who has millions of followers on social media, was fined by the SEC for covertly advertising the EthereumMax cryptocurrency on Instagram. Despite Kardashian adding different hashtags, including #ad, along with #emax and #disrupthistory, the commission determined that she had violated the anti-advertising provision of federal securities laws.
But then why not sanction the company that would have approved the ad she wrote based on information they themselves would have given her?
For starters, the #ad is not enough to comply with the laws when it comes to investment promotion. “The problem is that she did not say how much they paid her and she has to include that information in the advertisement, even if they made her a payment or a recurring monthly payment,” Alemán said.
The Financial Law specialist assured that the problem is that “people may believe that she is promoting this crypto in an impartial way, when it really is not impartial at all.”
“[The regulation] obviously seeks to protect the general public and investors,” added the expert.
The lawsuit that an FTX investor filed against Brady, Bundchen and Curry, among others, for their endorsement of the now-discredited cryptocurrency platform, alleges that these public figures failed to properly disclose their own involvement in digital financial institutions.
Another class action lawsuit against more than a dozen celebrities filed in early December for promoting NFTs cited a 2017 SEC statement that already warned that such endorsements “may be unlawful if they fail to disclose the nature, source, and amount.” of any compensation paid, directly or indirectly, by the company in exchange for sponsorship”.
Among the celebrities who were included in the lawsuit for promoting NFTs, a phenomenon related to cryptocurrencies, are Jimmy Fallon, Justin Bieber, Madonna and Serena Williams, to name a few.