Champion boxer Floyd Mayweather and musician DJ Khaled might be in a deep legal trouble as celebrity endorsers of initial coin offerings and other cryptocurrency products could soon face legal action as regulators continue to crack down on fraud.
That’s what securities attorneys warned amid the rash of SEC actions against scam ICOs.
“They are clearly sending a signal,” – former SEC attorney Nick Morgan told the Financial Times.
Last week, the SEC charged the co-founders of cryptocurrency startup Centra Tech Inc. with securities fraud. Regulators accused Sohrab “Sam” Sharma and Robert Farkas of raising more than $32 million through a sham ICO promoted by boxing champ Floyd Mayweather and music producer DJ Khaled.
While no charges were filed against Mayweather or Khaled, the SEC noted that Centra had used celebrities to promote their token sale.
“The defendants relied heavily on celebrity endorsements and social media to market their scheme,” said Steve Peikin, co-director of the SEC’s Division of Enforcement.
Attorney Nick Morgan said just because Mayweather and Khaled were not individually named in the case against Centra does not mean they’re off the hook.
“There was nothing in there that I think anyone should take comfort from, just because they were not individually named.” – says Nick Morgan.
SEC has not yet pursued celebrities who promote ICOs, the agency “left the door open” to sue them in the future.
Beth-ann Roth, a former SEC prosecutor and partner at Capital Fund Law, agreed.
[The lesson for celebrities is to] “know what you’re endorsing,” – Roth told the Financial Times
saying promoters could be charged with aiding and abetting the alleged fraud.
The SEC has warned that promoters, such as celebrities, had to disclose any compensation they received to promote an ICO, but the regulator did not comment on whether it is pursuing those who broke the law while promoting initial coin offerings. Mayweather and DJ Khaled risk being found to have aided and abetted the alleged scam. In the meantime, there are dozens of cryptocurrency-related class actions pending, which will see the light of day in the coming three months.
Celebrity endorsements of ICOs have become trendy as the budding industry tries to gain traction among investors by relying on the “star power” of famous people. Actor Jamie Foxx recently tweeted an endorsement of an ICO on Twitter, as did socialite Paris Hilton.
However 81% Of Recent ICOs Are Scams!
The concept of initial coin offerings has been abused and its credibility is in danger for many. Crypto Aware, a decentralized token investment-management community, has found that over $1.7 billion-worth of cryptocurrencies were lost to hacks and scams between 2011 and 2018.
According to the Satis Group, an ICO advisory company, a staggering 81 percent of ICOs launched since early-2017 have been found to be scams. Given these sobering statistics, attorneys say that anyone promoting an ICO could be held responsible for bilking investors out of their money.
“In the next 90 days we are going to see lots of litigation surrounding the promoters of these ICOs,” said attorney David Silver.
David Silver is overseeing a dozen cryptocurrency-related class action lawsuits.
Tags: Beth-ann Roth, Bitcoin, Centra, Crypto Aware, cryptocurrency, David Silver, Dj Khaled, Floyd Mayweather, fraud, ICO, ICO scam, Initial Coin Offering, Jamie Foxx, Nick Morgan, Paris Hilton, Paul Hastings, Robert Farkas, scam, SEC, Sohrab “Sam” Sharma