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Advertising Law Updates

| 1 minute read

SEC Charges Celebrities With Posting Misleading Endorsements in Social Media

Yesterday, the Securities & Exchange Commission announced that it had reached settlements with music producer DJ Khaled and boxer Floyd Mayweather Jr. over charges that they improperly promoted securities in social media.  

The SEC alleged that Khaled and Mayweather promoted securities that were being offered and sold in an initial coin offering without disclosing that they were being paid for promoting them.  The offering was being made by Miami-based Centra Tech, Inc.  These are the SEC's first cases to charge touting violations involving ICOs.

Khaled, who at the time had approximately 12.4 million Instagram followers, posted, "I just received my titanium Centra debit card.  The Centra Card & Centra Wallet app is the ultimate winner in Cyrptocurrency debit cards powered by CTR tokens!  Use your bitcoins, ethereum, and more cyrptocurrencies in real time across the globe.  This is a Game changer here.  Get your CTR tokens now."  The SEC alleged that Khaled was paid $50,000 for his post.  

Mayweather, who at the time had approximately 21 million Instagram followers, posted, for example, "Spending bitcoins ethereum and other types of cryptocurrency in Beverly Hills with my Titanium Centra Card.  Join Centra's ICO on Sept. 19th."  The SEC alleged that Mayweather was paid $100,000 for his posts. 

The SEC said that their failure to disclose that they were paid to promote the offering violated Section 17(b) of the Securities Act, which makes it unlawful for any person to promote a security that the person has been paid to promote, "without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof."  

As part of the settlement, Khaled agreed to pay about $150,000 and to a two year prohibition on advertising securities.  Mayweather, who was also charged with other improper social media posts for other offerings, agreed to pay about $600,000 and to a three year ban.  

In a statement last year, the SEC warned that when celebrities use social media to encourage the public to purchase stocks and other investments, the 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."  

Like the Federal Trade Commission, the SEC is also concerned about endorsements that don't disclose when a celebrity has been paid.  But, unlike the FTC, when the SEC brings charges for improperly promoting securities, it looks like big penalties will follow as well.

"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." -- SEC Enforcement Division Co-Director Stephanie Avakian

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advertising, securities, endorsements, sec