SEC’S First Cases for Improperly Touting ICOs are Brought Against Celebrities DJ Khaled and Floyd Mayweather

November 30

The U.S. SEC has shown it seriousness in cracking down on noncompliant ICOs by pursuing enforcement in a number of different ways.  We have reported on the SEC’s recent first-time enforcement action against an entity for operating as an unregulated national securities exchange and its recent first cases imposing civil penalties solely for ICO securities offering registration violations.  Yesterday marked another new first.  The cases brought against celebrities  DJ Khaled and Floyd Mayweather were the first to charge touting violations involving ICOs.

As the Commission has pointed out in its recent enforcement actions, much of the conduct against which it is taking action came after the SEC issued its DAO Report in 2017, warning that coins sold in ICOs may be securities and that those who offer and sell securities in the U.S. must comply with federal securities laws.

The order against Mayweather found that he failed to disclose promotional payments from three ICO issuers, including $100,000 from Centra Tech Inc. (which the SEC sued in April) and $200,000 in connection with two other ICOs.  A post on Mayweather’s Instagram account predicted he would make a large amount of money on an ICO.  The order against Khaled found that he failed to disclose a $50,000 payment from Centra Tech, which he touted on his social media accounts as a “Game changer.”

Without admitting or denying the findings, Mayweather and Khaled agreed to pay disgorgement, penalties and interest.  Mayweather agreed to pay $300,000 in disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest.  Khaled agreed to pay $50,000 in disgorgement, a $100,000 penalty, and $2,725 in prejudgment interest.  In addition, Mayweather agreed not to promote any securities, digital or otherwise, for three years, and Khaled agreed to a similar ban for two years.

According to the SEC, “[t]hese cases highlight the importance of full disclosure to investors.  With no disclosure about the payments, Mayweather and Khaled’s ICO promotions may have appeared to be unbiased, rather than paid endorsements.”  The SEC also warned that investors should be skeptical of investment advice posted to social media platforms.  Indeed, in November 2017, the SEC issued a statement cautioning about making decisions based on celebrity endorsements.

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David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. He is currently the Chairman of the Litigation Department of the firm’s New York office. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. Since 2008, David has been included in Chambers for his expertise in international arbitration.

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