- SEC says celebrities did not disclose that they were paid
- Celebrities fined and banned from promoting securities
- This is the first time SEC has charged celebrity ICO promoters for non-disclosure
- SEC warned celebrities last year
The United States Security and Exchange Commission, it seems, is done with barking and is now biting—gnawing hard at cryptocurrency and ICO offenders. This time, the commission has charged celebrities who promoted Initial Coin Offerings contrary to the requirements of the commission.
SEC announced on Thursday that it has settled charges with popular professional boxer Floyd Mayweather Jr. and U.S.-based rapper and music producer Khaled Khaled (or DJ Khaled) for promoting ICOs without full disclosure to the public. According to the press release published on its website, SEC said that both celebrities did not disclose that they were paid to promote the ICOs at the time.
SEC wrote:
“The SEC’s orders found that Mayweather failed to disclose promotional payments from three ICO issuers, including $100,000 from Centra Tech Inc., and that Khaled failed to disclose a $50,000 payment from Centra Tech, which he touted on his social media accounts as a ‘Game changer.’”
Apart from the payment of $100,000 from Centra Tech, Mayweather was said to have received a total of $200,000 from two other ICOs—Stox and Hubii Network. The SEC has now charged and fined both celebrities.
Last year ICOs gained prominence as it became the major funding source for blockchain and crypto-related startups. The interest in the market meant they received lots of investment for projects that would otherwise be seen as highly risky. Soon, celebrities like Mayweather, Khaled, Paris Hilton and more were getting involved in crypto; oftentimes using their star power to draw interest to projects.
As Smartereum reported, the SEC had warned last year that celebrities involved in ICO promotion may land in trouble especially if they did not disclose how much they were paid for their supports. “These endorsements may be unlawful if they do not disclose the nature, source and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement,” SEC warned at the time.
In a Twitter post, DJ Khaled referred to Centra Tech ICO as a “game changer” while Mayweather encouraged fans on Twitter and Instagram to buy into Centra as he wrote, “…starts in a few hours. Get yours before they sell out, I got mine…” SEC Enforcement Division co-director Stephanie Avakian noted that the ICO promotions may have appeared to be unbiased, rather than paid endorsements.
According to the press release, Khaled and Mayweather did not admit nor deny the charge rather they agreed to pay out-of-court settlements. Mayweather agreed to pay $300,000 in disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest. Khaled agreed to pay $50,000 in disgorgement, a $100,000 penalty, and $2,725 in prejudgment interest. The two celebrities also accepted bans from promoting ICOs or any securities whatsoever; Mayweather, a three-year ban, and Khaled for 2 years. SEC says both celebrities will continue to cooperate with the ongoing investigation.
Centra Tech ICO also ran afoul of the law after it raised about $32 million from thousands of investors in a fraudulent dealing. Centra tech toke was soon delisted by major cryptocurrency exchanges including Binance and KuCoin. The co-founders were also indicted for fraud and conspiracy by a grand jury earlier in 2018. The SEC also filed separate criminal charges against the founders.
Solomon Sunny is the market reporter for Smartereum, one of the global leaders in Ethereum, blockchain and currency news. He produces technical price updates on digital currencies and writes recent developments about blockchain.
