04 December 2018

First-ever charges brought by SEC over promotion of coin offerings

Professional boxer Floyd Mayweather Jr and music producer Khaled Khaled, known as DJ Khaled, settle with SEC over ICO payments.

The two celebrities did not disclose they received payment for promoting investments in initial coin offerings (ICOs) in the first cases where the Securities and Exchange Commission (SEC) has brought charges of touting violations involving ICOs.

Non-disclosure

The orders found that Mr Mayweather failed to disclose promotional payments from three ICO issuers, including $100,000 from Centra Tech Inc, and that Mr Khaled failed to disclose a $50,000 payment from Centra Tech, which he touted on his social media accounts as a ‘game changer.’ Mr Mayweather's promotions included a message to his Twitter followers that Centra's ICO ‘starts in a few hours. Get yours before they sell out, I got mine…’ and an Instagram posting ‘you can call me Floyd Crypto Mayweather from now on.’ These promotions came after the SEC issued its investigative DAO Report in 2017 warning that coins sold in ICOs may be securities and that those who offer and sell securities in the U.S. must comply with federal securities laws. In April 2018, the Commission filed a civil action against Centra’s founders, alleging that the ICO was fraudulent.

Investor skepticism needed

Without admitting or denying the findings, Mr Mayweather and Mr Khaled agreed to pay disgorgement, penalties and interest. Mayweather agreed to pay $300,000 in disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest. Khaled agreed to pay $50,000 in disgorgement, a $100,000 penalty, and $2,725 in prejudgment interest. Both agreed to a promotional ban for two years.  ‘Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements,’ said SEC enforcement division co-director Steven Peikin.