SEC Issues Warning About Celebrity-Endorsed ICOs

“Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments”

The U.S. Securities and Exchange Commission (SEC) issued a public statement warning about the risks associated with celebrity-endorsed Initial Coin Offerings (ICOs).

Released on November 1, the statement noted that “Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments”. It went on to caution investors about ICOs touted by celebrities, urging them not to make decisions based on celebrity endorsements alone.

“Investors should note that celebrity endorsements may appear unbiased, but instead may be part of a paid promotion.  Investment decisions should not be based solely on an endorsement by a promoter or other individual.”

Recently, several ICOs have been endorsed by public figures such as actor Jamie Foxx, boxing champion Floyd Mayweather Jr., producer DJ Khaled, socialite Paris Hilton, and rapper The Game.

However, the SEC warned that celebrity endorsement is not a sign of a product’s legitimacy or its suitability for different types of investors. Often, these public figures do not have the knowledge or expertise to determine whether or not the investment complies with federal securities laws (a press release issued earlier this year in July stated that tokens distributed via ICOs are subject to federal securities laws).

In addition to the statement, the SEC’s Office of Investor Education and Advocacy also released a supplemental advisory for investors, urging them to conduct background checks and do research before investing in any kind of ICO, celebrity-endorsed or otherwise.

The statement issued by the SEC also warned that celebrities promoting token sales run the risk of breaking the law if they fail to inform the public about the compensation that they are receiving in exchange for the promotion:

“These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement.”

By failing to disclose these details, the SEC declared that celebrities are in violation of “the anti-touting provisions of the federal securities laws”.