SEC charges 8 celebrities with misleading consumers with crypto promotion
What happened
This week, the SEC brought a series of charges against Justin Sun, the man behind Tron (TRX) and BitTorrent (BTT) cryptocurrencies. The SEC also accused eight influencers, including household names such as Lindsay Lohan and Jake Paul, of promoting the cryptos on social media without disclosing that they were paid for it. Sun denies any wrongdoing and six of the celebrities agreed to pay settlements of $400,000 each without admitting or denying the allegations.
So what
The charges against Sun include unregistered sales of crypto assets and wash trading, a form of fraud that involves buying and selling the same security to increase trading volumes. The SEC claims Sun generated over $30 million through “illegal, unregistered offers and sales” of the TRX token.
“This case demonstrates once again the high risk investors face when securities in cryptoassets are offered and sold without proper disclosure,” SEC Chairman Gary Gensler said. The SEC says the celebrities – Lindsay Lohan, Jake Paul, DeAndre Cortez Way (Soulja Boy), Austin Mahone, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty), Shaffer Smith (Ne-Yo) and Aliaune Thiam (Akon) — were specifically asked not to disclose their payment for token tokens.
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What now
This case is just one of several charges the SEC has brought against major players in the crypto industry in recent months. While lawmakers consider how to regulate the industry, bodies like the SEC are using existing rules to prosecute cryptocurrency cases.
Beyond the specific costs surrounding Tron and BitTorrent, there is a broader issue for crypto investors that could have a profound impact on the entire industry: the SEC considers many cryptos to be securities. If that is the case, much of your crypto portfolio could be considered unregistered securities.
There are strict rules for how securities can be traded and how they share information with the public. Given that many top crypto exchanges do not have licenses to trade securities, this difference can make it difficult to buy or sell crypto, and could mean large fines and reporting requirements for crypto projects.
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Got started
The shilling allegations against the celebrities highlight the dangers of social media investment advice. Here are three reasons to tread carefully:
- You don’t know if the celebrity was paid to give the endorsement.
- The account could be a fake – and even if it’s a real account, it could have been hacked.
- Many influencers are not financial advisors and do not know your situation.
If an influencer is promoting a particular product or service, look at the post to see if they’ve been paid to do so. See if this person has a background that qualifies them to provide financial advice. Also, look for red flags like advice that feels too good to be true.
At the end of the day, only you know what risk you are comfortable with and what investments can fit into your portfolio. Whether it’s cryptocurrency or another investment, don’t take a celebrity’s word for it. Do your own research and consider whether you are buying an asset that will help you build long-term wealth.
