Publicly available records provided by the Securities and Exchange Commission (SEC) on November 29, 2018 indicate that the SEC has reached a settlement of charges against Floyd Mayweather, a professional boxer, and DJ Khaled, a hip-hop producer, in connection to their paid promotion of investments in cryptocurrency Initial Coin Offerings, or ICOs. According to the SEC, “These are the SEC’s first cases to charge touting violations involving ICOs.”
The SEC’s release states that Mr. Mayweather received “promotional payments from three ICO issuers,” which he did not disclose, including a payment of $100,000 from Centra Tech, Inc. Meanwhile DJ Khaled received a payment of $50,000 from Centra which he did not disclose, according to the SEC. Both individuals promoted the ICOs via their social media accounts: Khaled, for instance, described the Centra ICO as a “game changer,” while Mayweather tweeted that it “starts in a few hours. Get yours before they sell out, I got mine.” Mayweather also posted on Instagram a “prediction” that another ICO would make him “a large amount of money,” according to the SEC,” and wrote on Twitter that “You can call me Floyd Crypto Mayweather from now on.” According to the SEC, Mayweather did not disclose his receipt of payments totaling $200,000 to promote those other ICOs.
The SEC notes that these paid promotions followed the issuance of a 2017 DAO report cautioning that coins sold in initial coin offerings may qualify as securities, meaning that anyone who offers and sells them in the United States must take care to follow federal securities laws. Later, in April 2018, the SEC filed a civil complaint against one of the ICO issuers, Centra Tech, alleging that its ICO was “fraudulent.” Parallel charges were filed by the US Attorney’s Office for the Southern District of New York, according to the SEC.
According to an SEC order in connection with these findings, Centra Tech, Inc. is a Miami-based company that underwent an ICO between approximately July and October 2017, offering and selling Centra tokens (also known as “CTR”) on the Ethereum blockchain. According to the SEC, “CTR tokens are investment contracts and therefore securities pursuant to Section 2(a)(1) of the Securities Act.” White papers issued by Centra stated that the ICO’s purpose was to raise capital so the company could “complete and operate” a “Multi-Blockchain Debit Card and Smart and Insured Wallet,” which the company said would allow cryptocurrency holders to “easily convert their assets into legal tender” and spend them with a card backed by Visa or MasterCard. In connection with that ICO, Mayweather allegedly recorded a video, on or around January 18, 2018, showing himself using the “Centra Wallet” smartphone application and “Centra Card” to purchase products at a Los Angeles Department store, according to the SEC, which states he later posted the video on YouTube.
The order concerning DJ Khaled, meanwhile, states that he received a payment of $50,000 for a September 27, 2017 Twitter and Instagram post that depicted him with a Centra Card, and which contained the caption: “I just received my titanium centra debit card. The Centra Card & Centra Wallet app is the ultimate winner in Cryptocurrency debit cards powered by CTR tokens! Use your bitcoins, ethereum, and more cryptocurrencies in real time across the globe. This is a Game changer here. Get your CTR tokens now!”
The SEC found both individuals to be in violation of Section 17(b) of the Securities Act, which states that it is unlawful for a person to: “publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.”
In connection with these findings by the SEC, both Mayweather and Khaled agreed to make payments of disgorgement, penalties and interest, according to the Commission: Mayweather will pay disgorgement totaling $300,000, a penalty totaling $300,000, and prejudgment interest totaling $14,775; meanwhile Khaled will pay disgorgement totaling $50,000, a penalty totaling $100,000, and prejudgment interest totaling $2,725. Both agreed not to promote digital or other securities for a specified period—three years in Mayweather’s case, two years in Khaled’s—and Mayweather agreed to “continue to cooperate with the investigation.” Neither individual admitted to or denied the alleged underlying conduct outlined in the SEC’s findings.
In a statement, Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, said: “These 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.”
Steven Peikin, Co-Director of the SEC’s Enforcement Division, said in another statement: “Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements. 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.”
More information on the SEC’s action is available here.