29 Nov SEC knocks out two celebrity ICO endorsers
The Securities and Exchange Commission (SEC) settled charges against professional boxer Floyd Mayweather Jr and music producer DJ Khaled for failing to disclose payments they received for illegally promoting investments in Initial Coin Offerings (ICOs).
Mayweather agreed to pay $300,000 in disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest. DJ Khaled agreed to $50,000 in disgorgement, a $100,000 penalty, and $2,725 in prejudgment interest.
“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.”
The settlement marks the first by the SEC in its investigations into violations involving ICOs. Since June, the SEC has cracked down on a range of cryptocurrency industry players including exchanges, ICOs, marketers and promoters, and fraudsters.
Centra suit targeted ICO fraud
More than $32 million was raised by the fraudulent ICO in 2017 by Sohrab “Sam” Sharma, Raymond Trapani, and Robert Farkas, co-founders of Centra Tech Inc. The accused claimed funds raised in the ICO would be used to build a suite of financial products including cryptocurrency payments falsely tied to Visa and MasterCard.
In addition to the celebrity endorsements by Mayweather and DJ Khaled, the SEC also alleged, “that to promote the ICO, Sharma, and Farkas created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra’s website, and paid celebrities to tout the ICO on social media.”
The criminal investigations are still ongoing by SDNY attorneys.
18.7% of ICO’s are scams
ICOs have been getting much negative attention partly in light of depressed market cap values for digital currencies, but also because founders and promoters are fraudulent or have not advanced product development as promised.
An October 2018 EY report showed 86% of ICOs lost part of their value, and 30% lost all value. In May 2018, a Wall Street Journal investigation showed 18.7% of ICOs were scams.
That hasn’t stopped 970 ICOs raising more than $22 billion in 2018 as of November 29 according to Coinschedule.
SEC Chair says market manipulation must be eliminated
In a November 27 presentation to the NYC Consensus: Invest conference, SEC chair Jay Clayton said the regulators will continue to monitor the industry, investigate fraudsters, and strongly protect investors.
Regarding digital assets and ICOs, Clayton said, “If there’s a gap between what you’re telling [the SEC] and what you’re telling people investing in your venture, that’s not a good place to start.”
Celebrity promotion chill
Regulators have definitely sent a message to founders and promoters, not to mention celebrities regarding how ICOs should be conducted.
The list of past celebrity ICO promoters is long and includes Floyd Mayweather, DJ Khaled, Paris Hilton, Steven Seagal, John McAfee, Dennis Rodman, Gwenyth Paltrow, rapper Ghostface Killah, and a host of other musicians, actors and professional athletes as well.
We can be certain of one thing. Fraudsters and promoters know no bounds and just like mainstream stock markets, we can expect to see more creative and shaky cryptocurrency promotions in the future.