Looks like the Securities and Exchange Commission (SEC) has had enough of the sudden run of celebrity-backed independent coin offerings, or ICOs. As of yesterday, it began officially warning them that by endorsing these currencies, they could be in violation of the law.
As of today, 2017 has seen 270 coin-backed projects raise over $3 billion though ICOs. And with money comes pretty and important people — like Paris Hilton, rapper The Game and boxer Floyd Mayweather — who have all been behind promoting specific ICOs, for an assumed fee.
But in a release out late yesterday (Nov.1), the regulators made it clear via a statement that celebrities who promote coin offerings could be violating multiple laws, including anti-fraud regulations and rules that govern investment brokers.
Oops.
The statement also implied that the SEC would consider enforcement action against these celebrities and stated that the regulatory agency would “focus on these types of promotions to protect investors and to ensure compliance with the securities laws.”
The note followed reporting in The New York Times in the last week about the various difficulties faced by Centra, a tech firm whose ICO was boosted by Mayweather’s endorsement.
Centra raised $30 million, but the project’s founders appear to have misled investors on many things — most importantly their ability to offer debit cards. Centra’s founders said they had paid Mayweather to promote their virtual currency, known as Centra tokens, in social media postings.
Mayweather did not note he had been paid — something the SEC says is illegal if he did not disclose his endorsement’s status as bought and paid for.
Floyd Mayweather has since deleted some of the social media posts that endorsed Centra. Paris Hilton deleted her post promoting a project known as Lydian Coin after information about its founder’s troubling history came to light in media reports from Forbes.
The SEC put out a separate investor alert on Wednesday as well, warning investors to be wary of endorsements from prominent people.
“It is never a good idea to make an investment decision just because someone famous says a product or service is a good investment,” the alert said. “Celebrities, like anyone else, can be lured into participating (even unknowingly) in a fraudulent scheme.”