The U. S. Securities and Exchange Commission is making an example out of boxer Floyd Mayweather and rapper DJ Khaled.<\/b>
\nThe U. S. Securities and Exchange Commission is making an example out of boxer Floyd Mayweather and rapper DJ Khaled.
The SEC announced on Thursday it has settled charges against both celebrities for \u201cunlawfully touting\u201d initial coin offerings (ICOs). The main issue: Mayweather and Khaled did not disclose payments they received for promoting the ICOs on their social media accounts. Mayweather was paid by three different ICO issuers, including $100,000 from a company called Centra; Khaled also received $50,000 from Centra.
In total, Mayweather agreed to pay a fine of $614,775 ($300,000 in disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest) and Khaled agreed to pay a fine of $152,725 ($ 50,000 in disgorgement, $100,000 penalty, and $2,725 in prejudgment interest). Mayweather may not promote any securities (\u201cdigital or otherwise\u201d) for three years, and Khaled may not promote any for two years.
Mayweather also agreed to keep \u201ccooperating with the investigation,\u201d which may mean the enforcement net against anyone connected to Centra will keep expanding.
As part of the settlement, neither celebrity admitted or denied wrongdoing.
Interestingly (and, many readers may find, humorously), the SEC includes specific social media posts in its press release. Khaled, the SEC writes, called the Centra ICO a \u201cgame changer.\u201d Mayweather, on Twitter, told his followers that the Centra ICO, \u201cstarts in a few hours. Get yours before they sell out, I got mine.\u201d He also tweeted, \u201cYou can call me Floyd Crypto Mayweather from now on.\u201d
In an ICO, a cryptocurrency startup creates and sells its own digital token; buyers pay for the token in bitcoin or ether. In the majority of cases, companies that do ICOs have not yet launched any product. You can think of an ICO as buying chips for use in a casino that hasn\u2019t been built yet. ICO funding exploded in popularity last year as an alternative fundraising method to traditional venture capital, but it has since peaked and withered amid the regulatory crackdown.
Centra, the ICO that Mayweather and Khaled had promoted, conducted a $32 million ICO to launch \u201cCentra card,\u201d a credit card to pay for purchases using bitcoin and ethereum. The founders of Centra were indicted for wire fraud and securities fraud back in May.
In the SEC\u2019s press release, the agency declares that these are its \u201c first cases to charge touting violations involving ICOs.\u201d In other words: this is the first time the SEC has publicly brought charges strictly for promoting ICOs.
But this is part of a larger, ongoing crackdown on ICO fraud \u2014 it is a crackdown that has been underway behind closed doors for over a year, as a recent Yahoo Finance investigation found, but the crackdown is now coming into the light .
There are two simultaneous forms of enforcement happening in the SEC\u2019s ICO crackdown: it is going after ICOs that were blatantly fraudulent, or fraudulent actions by those connected to ICOs, such as promising big returns, or dishonest marketing; separately, it is going after ICOs that did not register with the SEC as securities offerings.
SEC Chair Jay Clayton has made clear the agency\u2019s view that most ICOs are securities offerings and must be registered as such with the SEC, or qualify for a registration exemption by selling the token only to accredited investors (people with income of $200,000 or a net worth of $1 million) or only outside the U. S.
\u201cIf what you\u2019re doing is starting a venture, and you\u2019re funding that venture by issuing tokens you should start with the assumption that you are conducting a securities offering,\u201d Clayton said at the Consensus: Invest conference in New York City this week.
The actions against Mayweather and Khaled ought to put all the other celebrities (and there have been many) on blast. If they touted an ICO to their followers and promised, or in any way implied, that the token would go up in value, they could be in big trouble.
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Daniel Roberts covers bitcoin and blockchain at Yahoo Finance. Follow him on Twitter at @ readDanwrite.
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