Celebrity shilling cryptic faces are more than just sarcastic

For starters, the cryptocurrency world is on the outskirts of traditional finance. But every now and then, more people catch a glimpse. The coveted commercial breaks of the year during the Super Bowl fit the bill, as several now-famous ads featured stars trolling cryptocurrency. Larry David He showed up in place for FTX, as did Matt Damon and LeBron James In Crypto.com clips.

By appearing on the most exclusive properties in all of television, and partnering with some of Hollywood’s most trusted brand ambassadors, crypto companies have bought themselves an air of credibility on their way to legitimacy. Or, at least it seemed like they were on their way, until FTX — one of the world’s largest cryptocurrency exchanges that also issues its own token called FTT — collapsed when customers toured the exchange amid months of selling cryptocurrencies. On December 12, FTX founder Sam Bankman-Fried was charged and arrested for violating securities laws, a month after he was sued in a proposed class-action lawsuit along with the stars who promoted the company.

FTX account holders, as well as those who bought worthless cryptocurrencies from other issuers that have filed for bankruptcy, are likely to get pennies on the dollar back on their investment. New FTX CEO John J. Ray III told a House committee on December 13, “We’re not going to be able to make up for all the losses here.” They are standing in line behind a group of higher priority creditors. Now, there’s new scrutiny on the A-listers who FTX has turned to to wash its reputation. Although they may not have knowingly committed fraud, they may be on the hook for promoting unregistered securities. “The people who bear the most responsibility are the billionaires,” says Adam Moskovitz, who represents clients of FTX and Voyager in proposed class actions against cryptocurrency exchanges.

Bankman-Fried has leveraged the world of entertainment and celebrities to grow his business, attract new cryptocurrency buyers and establish FTX as an island of legitimacy in a sea of ​​scams. His aggressive marketing strategy featured partnerships with NBA teams, patches on the uniforms of Major League Baseball referees, and animated TV ads for stars promoting the exchange as a safe place to invest money.

Said Sina Nader, former CEO of the American company FTX, who led partnerships on the stock exchange, when he spoke with Hollywood Reporter For a story a little over a year ago. “Working with trusted people and institutions, people will look up and say, oh, if Stephen Curry, or Tom Brady, or Gisele, or Trevor Lawrence, or the whole of MLB are comfortable with cryptocurrency and FTX, maybe I can get comfortable with it too.”

In a lawsuit filed on November 15, FTX account holders sued Bankman-Fried and the stars who endorsed the platform, including David, and others like Tom Brady and Stephen Curry. They claim the company was a “Ponzi scheme” that used money obtained through new investments to pay off old investments and maintain a semblance of liquidity. The lawsuit alleges that FTX’s interest-bearing accounts were securities, requiring the promoters to disclose compensation from the company.

Other celebrities named in the complaint include Gisele Bundchen, Shaquille O’Neal and Naomi Osaka. All of them have appeared in FTX advertisements. The lawsuit claims that Osaka acquired a stake in the company and undisclosed amounts of cryptocurrency. So were FTX ambassadors Brady and Bundchen and MLB All-Star Shohei Ohtani — all of whom neglected to disclose payments from the company, the lawsuit says. Similar accusations were made in a lawsuit filed Dec. 8 against stars including Jimmy Fallon, Gwyneth Paltrow and Justin Bieber, who promoted non-fungible Bored Ape Yacht Club icons.

It’s a profitable game. Shark tank Star Kevin O’Leary, who is also a paid ambassador to FTX, testified before the Senate Banking Committee on Dec. 14, telling them that FTX paid him $18 million to promote the exchange, including $3 million to cover taxes, and $1 million in FTX shares (now “Probably worthless,” he said), and $10 million in crypto tokens held in FTX wallets (“I wrote it off to zero,” he told the committee).

Promoters of cryptocurrency and other digital assets have already run into legal trouble – a major consideration in civil lawsuits alleging fraud. On October 3, Kim Kardashian was charged by the SEC with Instagram endorsing EthereumMax without disclosing the $250,000 she received for the promotion. She settled the case for $1.3 million. Floyd Mayweather Jr. and DJ Khaled have resolved similar lawsuits brought by the Securities and Exchange Commission over non-disclosure payments they received to promote investments in an initial coin offering.

Grewal, director of the SEC division, said Gurbir S. In a statement about the Kardashian settlement.

But there is a ruling that challenges the notion that stars can be held liable for their alleged complicity in selling cryptocurrency. On December 7, a federal judge dismissed a lawsuit against EthereumMax backers accusing them of fraudulently misleading millions of their followers into buying EMAX tokens, only to sell their stakes once their value inflated. While the case raises “legitimate concerns” about the ability of celebrities to persuade unprivileged followers to buy “snake oil with unprecedented ease and access”, US District Judge Michael Fitzgerald found that there was an expectation that “investors will act sensibly before placing their bets on the zeitgeist”.

“This is a volatile area, and people need to do their own research,” says Daniel Dubin, an attorney at Alston & Bird, who suspects stars face too much legal exposure. “[This ruling] Sets the right tone for this type of litigation. You don’t want to discourage someone from investing in something they should have known was a bad investment.”

The FTX lawsuit takes a different approach. Moskowitz, the attorney representing FTX account holders, is seeking a court order in a separate class-action lawsuit filed in a Florida state court that FTX offered unregistered securities in the form of interest-bearing accounts. The judge will consider the matter with the Howey test, a standard featured in a 1946 Supreme Court case for determining whether a deal qualifies as an investment contract.

Max Dehlendorf, a lawyer who specializes in cryptocurrency, asserts that interest-bearing FTX accounts are securities because they require the money to be invested in a joint venture where there is an expectation of profits from the efforts of third parties. “If I’m buying something like a digital token or an NFT, I’m buying an investment contract,” says Dehlendorf. “The only reason to buy is because I expect a profit.”

Dehlendorf affirms the SEC’s position that most cryptocurrencies are securities and subject to disclosure and registration requirements, backed up by lawsuits brought by the agency in which courts have applied the Howey test. In 2020, a New York federal judge ruled in favor of the Securities and Exchange Commission in its lawsuit against Kik and found that the company illegally sold unregistered securities through its initial coin offering. The order followed a similar ruling in another lawsuit against Telegram, which had to forfeit $1.2 billion in ill-gotten gains and pay an $18.5 million fine.

Even if they didn’t knowingly participate in the alleged scheme, the popular promoters could be on the hook for damages if the exchange is found to have sold unregistered securities. The so-called “blue sky” law — enacted by various states to protect consumers from securities fraud — that the lawsuit alleges was violated is the vehicle that allowed courts to recover money from investors who profited from Bernie Madoff’s Ponzi scheme even though they were unaware by fraud. While O’Neal may try to distance himself from FTX by saying on Dec. 15 that he is “just a paid spokesperson,” that question will be decided by the courts in a pending lawsuit.

A version of this story first appeared in the Dec. 16 issue of The Hollywood Reporter. Click here to subscribe.