A&O Shearman | FinTech | Two Celebrities Charged in Connection with ICO Promotions
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  • Two Celebrities Charged in Connection with ICO Promotions

    On November 29, 2018, the Securities and Exchange Commission (SEC) announced that it has filed and settled separate charges against professional boxer Floyd Mayweather Jr. and musical artist Khaled Khaled (known as DJ Khaled) for their failure to disclose payments they received in connection with promoting investments in initial coin offerings (ICOs).  Without admitting or denying the charges, Mayweather agreed to pay $300,000 in disgorgement, a $300,000 fine and $14,775 in interest, while Khaled agreed to pay $50,000 in disgorgement, a $100,000 fine and $2,725 in interest.  Mayweather also agreed not to promote “any securities, digital or otherwise,” for three years, and Khaled agreed to the same ban for a period of two years.

    The enforcement order alleges that Mayweather failed to disclose promotional payments he received from three ICO issuers, totaling $300,000.  Mayweather promoted the tokens on social media platforms such as Instagram and Twitter, telling followers he planned to observe significant financial gains from his investments in the tokens, and that he could be called “Floyd Crypto Mayweather from now on.”  The SEC’s order found that Khaled received $50,000 to promote an ICO, which he called a “game changer” on his social media pages.

    Mayweather promoted the three ICOs from July 2017 through September 2017, while Khaled promoted the ICO in September 2017.  The SEC noted that such promotions took place after the publication of the DAO Report, which was published in July 2017.  This further suggests that the date of its publication may continue to serve as the starting point from which the SEC continues to issue enforcement orders against those who have violated securities laws in connection with digital assets.  The charges were also filed approximately one year following a statement by the SEC on celebrity-backed ICOs, which warned that such 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.”