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In its first cases, the SEC has brought violations against Floyd Mayweather Jr. and music producer DJ Khaled involving ICO promotion. The SEC noted that using celebrity endorsers was a crucial part of the ICO issuers’ promotional strategy.
Last year, when the virtual currency markets were pretty bullish, the boxer Floyd Mayweather Jr. and the music producer and rapper Khaled Khaled, known as DJ Khaled, were getting paid to promote new digital tokens.
On Thursday, regulators announced that both Mayweather and Khaled will have to give back all the money they received for those promotions and pay additional fines in the latest crackdown on the virtual currency markets.
The Securities and Exchange Commission said Mayweather was paid $100,000 and Mr. Khaled $50,000 to promote a virtual currency released last year by the start-up Centra Tech in a so-called initial coin offering. The men did not disclose those payments in their online postings hyping the digital coin, the regulators said.
In Mayweather’s case, the SEC found that he did not disclose promotional payments he received from three ICO issuers, including $100,000 from crypto startup Centra Tech Inc. The regulator said that Mayweather received $100,000 from Centra Tech, as well as another $200,000 from Stox and Hubii Network.
Just for a reminder, in August, Stox, an open source Bancor-based prediction market platform, started its ICO and had managed to raise 148,000 ETH, which is equal to $33,3 million.
An element of the huge success of the ICO obviously belonged to the big promotion from Floyd Mayweather, one of the greatest boxers of all time. He published a post on Instagram advertising the ICO.
Mayweather stated he was going to make a “ton of money” from the capital raise. According to Entertainment and Sports Programming Network, this profit can be just in time for the boxer as Mayweather’s wealth is tied up in assets and not liquid. That is why he couldn’t pay back a tax liability of $22.2 million to the IRS.
Just a month after he promoted the ICO of Stox.com, he took to Twitter to speak about another one. This time he stand for the Hubii Network which intends to raise as much as $50 million through an Ethereum-based initial coin offering to build a blockchain-based content marketplace.
Stating himself as “Floyd Crypto Mayweather” in an Instagram post, the sports star even hinted at an ongoing promotion effort with the hashtag “#CryptoMediaGroup” without elaborating.
On Instagram, Mayweather wrote to his over 22 million followers that he predicted he would make a lot of money from another ICO and posted on Twitter, “You can call me Floyd Crypto Mayweather from now on.” Mayweather was also paid an additional $200,000 to promote two other ICOs.
— Floyd Mayweather (@FloydMayweather) August 23, 2017
In September, the boxing champion has published a post on Instagram, advertising yet another ICO project, called Centra. The startup allows users to spend virtual currency by using its Centra card and Centra digital wallet. The post has already generated more than 258,000 likes. The co-founders of Centra Tech were indicted by a grand jury earlier this year on charges of fraud and conspiracy.
Without admitting or denying the findings Mayweather agreed to pay a $300,000 in disgorgement, a $300,000 penalty, and $14,775 in interest.
Back in November 2017, the SEC issued a statement in relation to “celebrities and others” whose backing ICOs can be potentially unlawful. According to the official warning made by the SEC, any promotion is considered unlawful if celebrities’ compensation isn’t disclosed:
“Celebrities who endorse an investment often do not have sufficient expertise to ensure that the investment is appropriate and in compliance with federal securities laws. If you are relying on a particular endorsement or recommendation, learn more regarding the relationship between the promoter and the company and consider whether the recommendation is truly independent or a paid promotion. We encourage investors to research potential investments rather than rely on paid endorsements from artists, sports figures, or other icons.”
The settlements highlight the importance of full disclosure to investors who may not have known that the social media posts were paid endorsements, said the SEC in a statement.
Enforcement Division Co-Director Stephanie Avakian said:
“These cases highlight the importance of full disclosure to investors. With no disclosure about the payments, Mayweather and Khaled’s ICO promotions may have appeared to be unbiased, rather than paid endorsements.”
Enforcement Division Co-Director Steven Peikin added:
“Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements. Social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds.”
In a separate case, the SEC concluded that DJ Khaled failed to disclose a $50,000 payment from Centra Tech, which he rabidly promoted on his popular social media accounts.
Khaled agreed to pay a $100,000 penalty, $50,000 in disgorgement, and $2,725 in prejudgment interest. The recording artist also agreed not to promote any securities for two years.