The Securities and Exchange Commission is at it again. Many may remember the recent charges against Kim Kardashian for impermissibly touting the EMAX cryptocurrency. This past week, the Commission charged twelve other celebrities, including actress Lindsay Lohan and social media personality (and wrestler!) Jake Paul with touting the crypto assets Tronix (TRX) and/or BitTorrent (BTT) in violation of the federal securities laws. These charges come at the same time as the SEC charged crypto asset entrepreneur Justin Sun and three of his wholly-owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), for the unregistered offer and sale of TRX and BTT.
As a reminder, Section 17(b) – the so-called “anti-touting provision” – of the federal Securities Act of 1933 makes it unlawful for any person to publish, give publicity to, or circulate any advertisement, among other communications, describing a security for a consideration received or to be received, without fully disclosing the receipt and amount of consideration. Here, since the SEC took the position that TRX and BTT constitute securities, when the celebs promoted them on social media and did not include required disclosures, the SEC found that they violated the anti-touting laws.
Ten of the twelve celebs have now agreed to pay the SEC a total of more than $400,000 in disgorgement, interest, and penalties to settle the charges, without admitting or denying the SEC’s findings.
This news should come as no surprise to anyone who's been following the SEC's crackdown on all aspects of the crypto market. It is thus important to remember that, when promoting digital assets, compliance with Federal Trade Commission material connection disclosure rules (e.g., inclusion of #AD in a post) may be necessary but not sufficient. Other regulators (including the SEC), as well as private plaintiffs, may also have skin in the game. As is clear from the SEC’s settlement here, to the extent the underlying asset is deemed a security, the receipt and amount of consideration must also be disclosed by those promoting it on social media.
“While we’re neutral about the technologies at issue, we’re anything but neutral when it comes to investor protection,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As alleged in the complaint, ... Sun paid celebrities with millions of social media followers to tout the unregistered offerings, while specifically directing that they not disclose their compensation. This is the very conduct that the federal securities laws were designed to protect against....”