Securities Regulation Daily Wrap Up, ENFORCEMENT—Floyd Mayweather and DJ Khaled unlawfully promoted ICO investments, (Nov 30, 2018)
Boxer Floyd Mayweather Jr. and music producer Khaled Khaled have settled SEC charges that they failed to disclose that they were paid to promote investments in initial coin offerings (ICOs). Both Mayweather and Khaled, known as DJ Khaled, failed to disclose that they had been paid to tout ICOs on social media. Mayweather agreed to pay over $600,000 in disgorgement and penalties, and Khaled will pay $150,000. Both also agreed to stop promoting securities (In the Matter of Floyd Mayweather Jr., Release No. 33-10578, November 29, 2018, and In the Matter of Khaled Khaled, Release No. 33-10579, November 29, 2018).
Mayweather. Between July 2017 and September 2017, Mayweather promoted three ICOs to over 42 million social media followers in exchange for approximately $300,000 from the three issuers. For example, Mayweather promoted an ICO conducted by Centra Tech, Inc., urging his Twitter followers to "Get yours before they sell out, I got mine." Centra paid Mayweather $100,000 for these promotions, but he did not disclose this fact. Mayweather had earlier promoted two other ICOs from two other issuers without disclosing that he had received $100,000 from each issuer to do so.
The Commission found that Mayweather violated Securities Act Section 17(b), which prohibits touting securities offerings without disclosing the receipt of compensation. To settle the charges, Mayweather agreed to continue to cooperate with the investigation and to pay disgorgement of $300,000, prejudgment interest of $14,775.67, and a civil money penalty in the amount of $300,000. He also agreed not to promote any securities, digital or otherwise, for three years.
Khaled. In September 2017, DJ Khaled promoted a Centra Tech ICO (the same ICO as Mayweather) to his 16 million followers without disclosing that he had been paid $50,000 to do so. Khaled posted a picture of himself holding a Centra Blockchain debit card plus text including: "This is a Game changer here. Get your CTR tokens now!" To settle charges that he violated Section 17(b), Khaled agreed to forgo promoting any securities for two years and to pay disgorgement of $50,000, prejudgment interest of $2,725.72, and a $100,000 civil money penalty.
SEC urges caution. Enforcement Division Co-Director Steven Peikin said: "Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements." He added that "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." Enforcement Division Co-Director Stephanie Avakian noted that "With no disclosure about the payments, Mayweather and Khaled's ICO promotions may have appeared to be unbiased, rather than paid endorsements."
Khaled and Mayweather's promotions occurred after the Commission issued a November 2017 statement encouraging investors to be wary of and research investment opportunities touted by "artists, sports figures or other icons." Investors were warned that endorsements by celebrities could be unlawful if they do not disclose the nature, source, and amount of any compensation paid in exchange for the endorsement. Additionally, the Commission filed a civil action against Centra's founders in April 2018, alleging that the ICO at issue here was fraudulent. Parallel criminal charges were filed by the U.S. Attorney's Office for the Southern District of New York, and the founders were indicted in May 2018.
The releases are Nos. 33-10578 and 33-10579.
LitigationEnforcement: Blockchain SecuritiesOfferings Enforcement