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Celebs Promoting Cryptocurrency Receive Criticism

This year's Super Bowl saw several advertisements featuring stars endorsing cryptocurrency, with Larry David, Matt Damon, and LeBron James among the featured personalities. The ads were meant to bring an air of legitimacy to the world of cryptocurrency and the firms behind it, but this plan quickly unraveled when FTX, one of the world's top digital currency-exchange platforms, collapsed. On December 12th, FTX founder Sam Bankman-Fried was charged and arrested for violations of securities laws and a class action lawsuit was filed against him, as well as other celebrities who had promoted the platform.

The lawsuit alleges that FTX was a "Ponzi scheme" that used funds from new investments to pay off old investments and maintain the appearance of liquidity. The suit claims that FTX's interest-bearing accounts were securities and that the celebrities who endorsed them did not adequately disclose payments from the company. Those being sued include Larry David, Tom Brady, Gisele B√ľndchen, Naomi Osaka, Jimmy Fallon, Gwyneth Paltrow, and Justin Bieber.

The Securities and Exchange Commission has also taken action against celebrities for their endorsements, charging Kim Kardashian for promoting EthereumMax without disclosing a $250,000 payment she received for the promotion. She settled the case for $1.3 million. Floyd Mayweather Jr. and DJ Khaled have also settled similar suits with the SEC over failing to disclose payments they received for promoting investments in an initial coin offering.

However, there is one ruling that challenges the notion that stars can be held liable for their alleged complicity in peddling crypto. On December 7th, a federal judge dismissed a lawsuit against endorsers of EthereumMax, finding that while the case raises "legitimate concerns" over the ability of celebrities to persuade followers to buy "snake oil with unprecedented ease and reach," investors are expected to act reasonably before basing their bets on the zeitgeist of the moment.

The FTX litigation seeks a court order in a separate class action filed in Florida state court that FTX offered unregistered securities in the form of interest-bearing accounts. The SEC's stance is that most crypto are securities and subject to disclosure and registration requirements, and the Howey Test is used to determine whether a transaction qualifies as an investment contract. If it is found that the exchange sold unregistered securities, the celebrities who promoted it may be on the hook for damages even if they didn't knowingly participate in the alleged scheme. It is up to the courts to decide this in the pending litigation.

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