SEC Zeros in on Celebrity Promotions

By on March 26, 2019

Executive Summary of an article written by
Michael Rivera and Abby Yi, Bass, Berry & Sims PLC

The enhanced publicity garnered from celebrity involvement in an SEC action can help the agency warn and educate a broader segment of the public of the consequences of securities violations, thus deterring more would-be violators and alerting more investors to fraud schemes. This scenario puts celebrities at heightened risk when they are involved with companies that come under SEC scrutiny. The SEC can be motivated to charge the celebrity or announce their involvement with a punished company to publicize the action.

The benefits to the SEC of pursuing actions involving celebrities is illustrated by recent enforcement actions against two celebrities. In November 2018, the SEC announced charges against boxer Floyd Mayweather Jr. and music producer Khaled Khaled (aka DJ Khaled) for promoting ICOs via Twitter. Cracking down on fraudulent ICOs and protecting investors from fraudulent ICO schemes is a chief priority for the SEC. Mayweather and Khaled were required to disgorge all the compensation they received for promoting the ICOs and to pay additional penalties totaling over $600,000 for Mayweather, and over $150,000 for Khaled.

Mayweather once said, “Boxing is real easy. Life is much harder.” To avoid the hassle of dealing with a regulatory inquiry (which can be costly and time consuming) and to protect themselves from potential liability, celebrities should consult counsel when considering an endorsement involving any type of investment in a company.

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