From Eminem to Snoop Dog, Tony Hawk to Lionel Messi, William Shatner to Brie Larson, music, sports and Hollywood celebrities have eagerly jumped on the NFT (non-fungible token) bandwagon. Whether launching their own collections, buying an expensive profile picture or simply supporting emerging artists, celebrities have embraced blockchain technology and have touted the virtues of owning a unique digital collectible across social media platforms.
So what’s the harm? Well, according to consumer watchdog Truth In Advertising (TINA), by failing to disclose (i) their material connection to the NFT brands as well as (ii) the risks associated with investing in volatile speculative digital assets, these celebrities may be engaging in misleading advertising practices.
Take Justin Bieber for example. In January, the pop star made headlines for spending $1.3 million on a Bored Ape Yacht Club NFT, reportedly 300 percent more than the valued market price. But that’s not what TINA was interested in. Instead, they focused on an alleged undisclosed connection between the Biebs and an NFT collective called the inBetweeners. Before overpaying for BAYC, Justin had claimed inBetweeners’ NFTs – all of which were allegedly given to him, none of which he disclosed. Furthermore, according to TINA, the singer, who is apparently a partner in the collective, had promoted the company “without ever disclosing the risks associated with investing in such speculative digital products.” TINA may be particularly focused on this example given Justin’s fan base – impressionable preteens, teens and young adults.
In June, TINA similarly warned actress Reese Witherspoon about her promotion of certain NFTs made by World of Women without disclosing that her company, Hello Sunshine, was engaged in a cooperation with the mark.
So why does TINA care? Well, for one thing, the Federal Trade Commission’s (FTC) guidelines regarding the use of endorsements and testimonials in advertising require that any material connection—such as a personal stake in a company, receiving compensation for an endorsement, or receiving free product—be clear and conspicuousdisclosed to the public. This is to protect the public who, without such disclosures, may not understand that a celebrity endorsement may be biased if the celebrity receives payment in exchange for the endorsement. The public may also not realize that a celebrity’s endorsement of a particular NFT can increase its value, a practice known as artificial price gouging.
TINA has taken matters into her own hands. Last week, the advocacy organization sent letters to more than a dozen celebrities warning them “that celebrity NFT campaigns are an area rife with deception” and that failure to disclose their material affiliation with any NFT company they promote could lead to potential FTC action against them.
Importantly, these letters come on the heels of the FTC’s recent deployment of its own Notice of Penalty Offense, in which the agency notified over 700 companies for engaging in potentially deceptive endorsement practices. With each potential violation carrying a civil penalty of up to $43,792, it’s not just a slap on the wrist. A wrongly exposed tweet, ‘gram or ‘tok can cost brands thousands. (For background on these notices, see our previous posts here , here , here , and here .) That said, the FTC has talked more than acted as far as holding celebrities or influencers accountable for failing to disclose a material connection. To date, the only enforcement case the FTC has brought against an influencer was in the CSGO Lotto case. While the FTC claimed that as its “first-ever complaint against individual social media influencers,” the individuals against whom the lawsuit was filed also owned the online gambling service they were promoting.
And it’s not just the FTC that celebrities should be concerned about; so is the US Securities and Exchange Commission (SEC). Although the SEC has yet to rule NFTs as a security, celebrities should heed the commission’s 2017 warning to well-known backers against promoting cryptocurrency initial coin offerings (ICOs) without issuing proper disclosures. In short, failure to disclose the nature, extent, and amount of compensation received in exchange for a promotion can open a celebrity endorser to potential liability for violating the anti-touting provisions of federal securities laws.
So a word to the wise for all brands and celebrities looking for their next NFT collaboration: Regardless of the product or medium in which such endorsement occurs, remember to follow federal guidelines regarding endorsements and clearlyand conspicuous disclose the relationship between the parties and the volatility of any investment in digital assets. Celebrities have their own brands to protect; they certainly don’t want to be accused of deceiving their loyal fan base – whether on purpose or not.
The content of this article is intended to provide a general guide to the subject. You should seek specialist advice about your specific circumstances.
