Celebrities Including Madonna, Tom Brady Mired in Lawsuits for Pushing Crypto, NFTs
Investors who lost millions during the hot bull run are suing celebrities who used their fame and endorsement of digital assets, such as cryptocurrencies or nonfungible tokens (NFTs), for civil damages. crypto These assets were flooded with liquidity and iced over.
Numerous celebrities, from movie stars to athletes, have been named in lawsuits for their promotion of virtual asset projects that were later abandoned.
The lawsuits make a range of claims, including violations of unfair competition laws and civil conspiracy, with some under federal law and others under state laws, which stipulate various legal requirements for the promotion of financial products.
Although the details may vary between cases, the underlying theme is the same. article The U.S. Securities and Exchange Commission, (SEC), warns that it is illegal to endorse investments without disclosing compensation. According to the Securities Act of 1933, anyone who touts a security must disclose the fact that they’re getting paid to endorse it.
“Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments. 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,” The article says.
The SEC has increased its focus on digital assets in response to a phenomenal increase in interest in this area.
“Crypto markets have exploded in recent years, with retail investors bearing the brunt of abuses in this space. Meanwhile, cyber-related threats continue to pose existential risks to our financial markets and participants,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, In a statement.
The agency was almost complete in May 2022. Double the size It increased the activity and increased the number of positions in its crypto enforcement unit to 50.
According to a report, the SEC had a record number crypto-related enforcement actions in 2022. This was up about 50 percent over 2021. Report released Cornerstone Research, a consulting firm.
Cornerstone Research found that in 2022 the SEC had brought 30 enforcement actions, including six administrative proceedings and 24 litigation cases in federal courts.
Madonna
One of the lawsuits was (pdf), which lists Madonna among the dozen or so celebrity defendants, targets technology company Yuga Labs, which develops NFTs.
The suit alleges that the federal securities laws and California state consumer protection regulations were violated during the time of the ahref=”https://www.theepochtimes.com/t-celebrities”>celebrities The allegedly promoted NFT project Bored Ape Yacht Club (BAYC) in exchange for compensation—but without identifying it as a paid endorsement.
Madonna, who promoted the tokens during media interviews and on social mediaAccording to the complaint, he was awarded a BAYC NFT of almost $500,000 as compensation.
The promise of a star-struck investor attracted them. “joining the club”—i.e., buying one of the BAYC tokens—would provide them with access to events, benefits, and “lucrative investment opportunities,” The complaint states.
“Unsuspecting investors” The tokens were purchased at “drastically inflated prices,” Only to be struck later “staggering losses.”
In a statement, Yuga Labs’ representative stated that the lawsuit was without merit and that Yuga Labs never paid anyone to promote NFTs.
Madonna’s representative told media outlets that she paid for her Bored Ape token. The case continues.
Are NFTs Securities
Experts believe that the NFTs must be approved by the U.S. Supreme Court in order to succeed in the lawsuit “Howey test,” It is used to determine what something is under securities law. “investment contract” It is therefore important to have a “security.”
An asset or arrangement that is considered security must be an investment of money, in a common enterprise, provide a reasonable expectation to profit, and have been derived from the efforts others.
“Courts have not yet addressed whether they are securities, and the SEC has not taken a clear position on the question,” O’Melveny & Myers LLP, a California-based multinational law firm, In a memo NFTs: What is their legal status?
Alma Angotti, a former senior enforcer with the U.S. Treasury Department’s Financial Crimes Enforcement Network, Artnet News – She believes some NFTs could be securities. The SEC and courts would apply the Howey Test to them before making a decision.
“If [Yuga Labs] was essentially selling the product as an investment that would increase in value based on efforts of the company, then a court may find it a security,” The outlet was informed by Angotti.
On the other hand, if Yuga Labs was selling their NFTs based on the idea that they may increase in value just because people find them appealing, then regulators probably won’t deem them securities, she added.
“But it still could be fraud if they made misrepresentations,” Angotti added.
Other Lawsuits
Another suit (pdf), whose named defendants include NFL quarterback Tom Brady, is focused on A-lister endorsements of the defunct crypto platform FTX.
The complaint claims that the defendants violated Florida securities laws and consumer protection laws by failing to disclose their financial arrangements.
According to the lawsuit, FTX yield-bearing account fall under the SEC’s umbrella for securities. It claims that customers of FTX engaged with the platform to trade on the platform. “unregistered securities” The celebrity endorsers ought to have disclosed this fact. “paid exorbitant sums of money to peddle FTX to the nation.”
Brady’s attorney has declined to comment on the case, which is ongoing.
FTX founder Sam Bankman Fried, who is alleged to have committed one of America’s biggest financial frauds, faces criminal and civil penalties.
Another case was settled in December 2022. Floyd Mayweather Jr. and Kim Kardashian were named as defendants in a case involving their promotion for the cryptocurrency EthereumMax. This currency enjoyed celebrity-fueled popularity that saw it fall in value.
The judge explained the dismissal by saying that the plaintiffs didn’t provide enough evidence that the celebrity defendants meant to mislead investors.
“While the law certainly places limits on those advertisers, it also expects investors to act reasonably before basing their bets on the zeitgeist of the moment,” Judge Michael Fitzgerald of U.S. District Court, Central District of California said in a court record.
Kardashian’s lawyer told media outlets that his client is “pleased with the court’s well-reasoned decision.”
Reality TV’s star Earlier agreed SEC charges against her for promoting EthereumMax, without her disclosing that she had been paid $250,000 to post an Instagram post about it. She was ordered to pay $1.26 Million.
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