Famous people are facing scrutiny for their involvement in promoting fraudulent assets and businesses. Cryptocurrency coins, cryptocurrency exchanges, and blockchain-verified images have all used the image and likeness of some of the world’s biggest superstars to promote themselves and attract investors. The failure and fraud linked to some of these assets have brought lawsuits and government enforcement actions down on those same promoters.
The massive cryptocurrency exchange known as “FTX” collapsed in November of 2022. The exchange suffered from a liquidity crisis after using client funds to cover investment losses. Aside from the billions in lost funds, criminal charges, and bankruptcy filings, the collapse of the exchange brought civil suits down on some of the largest celebrities and athletes in the United States. [1] A federal class action was filed in the Southern District of Florida naming – among others – Tom Brady, the Golden State Warriors, Naomi Osaka, and Kevin O’Leary. All those named had worked extensively to advertise for FTX.[2] A complaint has also been filed in Florida state court.[3] All the named defendants are facing significant liability exposure as their involvement in the fraud scheme is worked out.
This is not the first time celebrities have gotten in trouble over their involvement with cryptocurrencies. In November 2018, professional boxer Floyd Mayweather and musician DJ Khaled settled charges brought by the SEC. The charges were brought after the SEC determined that the celebrities had been paid to promote various cryptocurrencies, but failed to disclose this fact to their audience.[4] In February 2020, actor and martial arts specialist Steven Seagul settled similar charges.[5] All three settlements cost over $100,000.
Blockchain products are particularly susceptible to regulatory confusion. It is unclear whether some blockchain-related products can be considered traditional securities. If a blockchain product is considered a security, it is subject to stringent government regulations. This is an issue that has been particularly prevalent in the “NFT” space, where the SEC has yet to weigh in on the topic.
The uncertainty around NFTs has been a confusing issue for all, including brand affiliates. Yuga Labs, a blockchain start up and creator of the popular “Bored Ape” collection of NFTs, used promoters like Justin Bieber, Serena Williams, and Kevin Hart to push its products to consumers. Yuga and its brand affiliates failed to report any compensation for the advertisements, and instead allegedly made it appear the famous individuals found the group organically.[6] Yuga and its brand affiliates are now facing a federal class action suit.
Crypto is a lucrative advertising opportunity for many celebrities. While the crypto market has experienced a downturn in recent months, the industry is still worth hundreds of billions. New ventures continue to enlist famous personalities to boost their status and attract investors, paying substantial sums in the process. However, with continued legal uncertainty, celebrities may be better served sharing products with less government oversight.
[1] https://www.wsj.com/articles/crypto-crisis-a-timeline-of-key-events-11675519887
[2] https://docs-cdn-prod.news-engineering.aws.wapo.pub/publish_document/12afdf1a-a614-48a8-88e5-aa0e9e581c6f/published/12afdf1a-a614-48a8-88e5-aa0e9e581c6f.pdf
[3] https://theathletic.com/3991648/2022/12/12/tom-brady-david-ortiz-ftx-lawsuit/?redirected=1&access_token=12077822
[4] https://www.sec.gov/news/press-release/2018-268
[5] https://www.sec.gov/news/press-release/2020-42
[6] Class Action Reporter, YUGA LABS: Real Sues Over Unlawful Celebrity Promotions, Vol. 24 (Jan 24, 2023)
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