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SEC Releases Statement Warning about Celebrity Endorsements

News
SEC Releases Statement Warning about Celebrity Endorsements

In a statement on November 1, the SEC made clear that the endorsement by artists, musicians, actors or athletes, does not ensure the credibility of a purchase.

Potentially Unlawful Promotion of ICOs

The U.S. Securities Commission announced that many of the recent celebrity endorsements behind ICOs and relevant cryptocurrencies may be unlawful. Insofar as the endorsement revolves around the celebrity’s presence, the SEC deems investments that, “Do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement” as illegal.

The report reminds investors to research thoroughly a promoted product before making any variety of investment. This comes from the fact that many celebrities have little to no background in investing, nor do they stand as suitable advisers in the field. As with any other product, these individuals act simply as paid endorsements to spread coverage of an investment.

The SEC concluded that these types of endorsements, especially in the way of the growing ICO landscape, will become a major focal point for the commission. To the extent that is available, “persons making these endorsements may also be liable for potential violations of the anti-fraud provisions of the federal securities laws, for participating in an unregistered offer and sale of securities, and for acting as unregistered brokers”.

This announcement comes from the commission’s general refocusing on consumer protection in this sector, as well as reminding investors that timeless regulations will continue to be applied.

Recent Celebrity Endorsements

There has been a long history of celebrity endorsements on just about every product since the advent of marketing. One of the first investing endorsements being the penny stock sponsored by Curtis Jackson, aka 50 cent, in 2011.

This marked one of the first events in which Jackson’s endorsement earned him the attention of the SEC following allegations of using his influence to boost the tech startup H&H imports. As he never sold the stocks when the price shot up 240%, the allegations were dropped.

In July, professional boxer Floyd Mayweather, made an instagram post next to a stack of money and the statement, “I’m gonna make a $hit t$n of money … on the Stox.com ICO”. Barcelona player, Luis Suarez, also jumped on board after asking followers on Twitter “You in?”.

Common Sense Business Practices Remain

Despite the heap of celebrities sponsoring different ICOs and crypto-investments, the same basic rules of business apply. As the SEC helps to promote education on the subject, it is simply a matter of time before people realize that there is nothing inherently new in these endorsements.

Charles Hoskinson, Ethereum co-founder and founder of IOHK, explained that the growth in this new field, “Does not, however, replace basic business principles such as due diligence, use of funds, who comprises the management, what is the business plan and how the entity in question is going to execute on its plan”.

This also applies to the legal side of things. It is now very clear, especially after the DAO ruling, that the regulation commission will continue to pursue initial coin offerings in the case of fraud or unlawful proceedings.