With BitCoin breaking through the $10,000 barrier and growing interest in the uses of the underlying blockchain technology, everyone is looking to cash in using virtual currency. As with an IPO, the goal of investors in an Initial Coin Offering is get in early and cheap before the market takes the price up. The Securities and Exchange Commission warned sponsors that ICOs look a lot like a securities offerings and need to comply with securities laws.
It turns out that ICO sponsors are violating SEC rules and FTC rules.
Looking forward to participating in the new @cobinhood Token! ZERO fee trading! #CryptoCurrency#BitCoin#ETH – https://t.co/1XFiosn22Spic.twitter.com/A7es0C2Rxr
— Jamie Foxx (@iamjamiefoxx) September 18, 2017Looking forward to participating in the new @LydianCoinLtdToken! #ThisIsNotAnAd #CryptoCurrency #BitCoin #ETH #BlockChainpic.twitter.com/a8kT9eHEko
— Paris Hilton (@ParisHilton) September 3, 2017
The SEC warned that celebrity endorsements of securities need to disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement. (Obviously, that is hard to do in the 140 280 characters of Twitter.) A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws. That also potentially pulls the celebrity endorser into possible anti-fraud provisions of the securities laws
There are the advertising rules from the Federal Trade Commission that also require disclosure of payment for endorsements. The FTC Guidelines make it clear that celebrities must disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on social media.
Ms. Hilton’s endorsement of Lydian Coin was deleted after Forbes reporters uncovered the checkered legal past of the founder of Lydian Coin.
Sources:
- How Floyd Mayweather Helped Two Young Guys From Miami Get Rich
- Celebrity Influencers Now Causing Trouble With … Investments? by Jesse M. Brody
- Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and Others
- Initial Coin Offerings and the Securities Laws
- Updated FTC Guidelines Affect Testimonial Advertisements, Bloggers, Celebrity Endorsements