Mayweather And DJ Khaled Charged $800,000 By SEC For Promoting ICOs
The undefeated welterweight boxing champion, Floyd Mayweather Jr., and a well-known music producer DJ Khaled settled a lawsuit against them in the case of endorsing Centra Tech’s illegal securities offering. Mayweather also endorsed two other ICOs.
The SEC charged Mayweather just over $600,000 and Khaled just over $150,000 for a combined total close to $800,000 and this represents $400,000 more than they received as compensation.
The SEC’s official report states that these celebrities were involved in promoting Centra Tech’s Initial Coin Offering (ICO), for which Floyd allegedly received $100,000 and Khaled $50,000, but both failed to disclose that they were compensated for endorsements.
It is reported that Mayweather is also guilty of promoting two more such illegal offerings, for which he was paid a combined sum of $200,000.
Fines and disgorgements
In April 2018, co-founders of Centra Tech, Sohrab “Sam” Sharma and Robert Farkas, were accused of securities fraud and illegally crowdfunding their venture by raising $32 million, helped by two mentioned celebrities.
The undefeated professional boxing icon didn’t confirm or deny any wrongdoings but has immediately agreed to pay a total of $614,775 of which $300,000 in penalties, $300,000 in disgorgement, and $14,775 in prejudgment interest
DJ Khaled, was forced to pay a $100,000 penalty, $50,000 in disgorgement, and $2,725 in prejudgment interest.
Both famous ICO promoters got banned from promoting any securities. Floyd for three years, and Khaled for the next two years. In addition, Mayweather agreed to further collaborate with investigators.
The importance of the disclosure
Another agraviating circumstance in the case against the duo was the fact that they joined the marketing campaign after the SEC’s DAO Report, published in 2017, which issued a warning that cryptocurrencies sold during ICOs may fall under the Securities and Exchange Act, which would require them to be registered with the commission.
Moreover, both Mayweather and Khaled failed to disclose that content connected to ICO they were publishing on their social media channels was paid for by the companies conducting those crowdfundings, which is illegal in the US and possibly in other jurisdictions.
“These cases highlight the importance of full disclosure to investors,” said Enforcement Division Co-Director, Stephanie Avakian, further explaining that without the full disclosure about receiving payments for their endorsements, Mayweather and Khaled may have deceived their many followers into believing that their promotional content was unbiased.
“Social media influencers are often paid promoters, not investment professionals,” said Enforcement Division Co-Director Steven Peikin, emphasizing that investors should be skeptical about any form of investment advice, especially the one posted on social media.
A game changer
It isn’t known how much these two superstars know about cryptocurrencies and the blockchain technology, but Peikin’s words should be taken into account by any investor looking to put his money with any startup conducting a crowdfunding.
Floyd urged his millions of followers on Twitter to invest in Centra “before they sell out (the ICO)”, while the music producer explained on his Instagram that the company’s product was a “game changer.”
And a game changer it was, but unfortunately for the endorsing duo, the game-changing part was the one where they are the first two celebrities charged for helping an illegal ICO lure investors.
This case shows that, just like investors should be careful who they trust, celebrities should show an equal amount of caution when endorsing a product.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your own research and/or consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.