SEC Smacks Down Floyd Mayweather Jr. and DJ Khaled for Promoting Cryptocurrencies
Boxer Floyd Mayweather Jr. reacts in the stands during an NFL football game Nov. 19 in Los Angeles. Marcio Jose Sanchez/AP photo
The commission fined the celebrities for failing to disclose their social media posts were paid for.
The Securities and Exchange Commission settled charges against professional boxer Floyd Mayweather Jr. and music producer DJ Khaled for promoting initial coin offerings on social media without disclosing they were paid for the posts, the agency announced.
Fledgling cryptocurrencies use initial coin offerings as a way to raise funds for their product by granting investors an ownership stake, similar to more traditional companies’ initial public offerings. In 2017, SEC warned that coins sold in ICOs “may be” securities and the sellers need to follow federal securities law.
Mayweather received $300,000 for promoting three ICOs issuers, including a company called Centra Tech Inc., on his Twitter and Instagram accounts and Khaled got $50,000 from Centra Tech, according to the SEC announcement released Thursday.
The SEC filed a civil suit against Centra Tech in April, alleging the ICO was fraudulent. The U.S. Attorney's Office for the Southern District of New York also filed criminal charges.
Both celebrities agreed to pay penalties and stop promoting securities for the next two to three years, though neither admitted nor denied the SEC’s charges. Mayweather agreed to cooperate with the SEC’s continuing investigation and will pay about $615,000. Khaled will pay about $150,000. For a little perspective, Mayweather made a minimum of $100 million for his last fight against mixed martial artist Conor McGregor in 2017.
"Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements," said Enforcement Division Co-Director Steven Peikin. "Social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds."
The Federal Trade Commission in the past has issued warnings to celebrities for failing to label when they are being paid to promote a product or service. For example, on Instagram, paid relationships should be explicitly stated in the opening lines of the post and hashtags at the end of the post don’t count.