The U.S. Securities and Exchange Commission (SEC) is on the hunt! Crypto initial coin offering (ICO) projects are a top priority for cases pending and investigations by the SEC, especially by promoters in the entertainment industry. Are entertainers targeted by the SEC? Don’t promote ICOs without disclosing! ICO promoters beware!
This new directive by the SEC is fueled by the recent settlements by Floyd Mayweather and DJ Khaled, both of whom used their status as social media influencers, to promote ICOs without disclosing how much they were paid to do so. Both settled in regards to securities violations. This firmly entrenches the belief by the SEC that cryptocurrencies outside of Bitcoin and Ethereum are considered securities. Other social media influencers are being investigated as we speak.
Is ICO Promotion a Fraud?
Social media influencers, including writers, YouTube celebrities, cryptocurrency review sites, publications, and many more could be and potentially are being targeted by the SEC if there’s sufficient evidence to prove that the individual or organization received monies or compensation from an ICO to promote an ICO without disclosing the amount that they received in compensation. This violates existing securities laws set forth and enforced by the SEC. From the SEC:
“Any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion,” the SEC said last year, emphasizing that the failure to disclose compensation is considered a fraudulent activity.
Last month, the SEC followed up on its previous statement and said that investors must be aware of celebrities promoting ICOs or tokens. If they do so, investors must be made aware of any and all compensation. The commission said:
“Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements. Social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds.”
If a celebrity promotes an ICO after receiving a payment to do so, as DJ Khaled and Mayweather had, and the ICO is considered a security by the SEC (all tokens on the blockchain outside of Bitcoin and Ethereum currently), the individual could be seen as a violator of U.S. securities regulations by the SEC.
So how do you avoid being targeted by the SEC? Make sure that you’re promoting a project while disclosing the amount of compensation.
ICOs are Securities
Over the past seven months, Coinbase, the largest fiat-to-crypto exchange in the U.S. market and arguably, one of the most famous, has been working with regulators to list additional digital assets on its platform.
Coinbase announced its interest in listing Steller Lumens (XLM), Cardano (ADA), 0x (ZRX), Zcash (ZEC), and Basic Attention Token (BAT). As of today, only 3/5 of those tokens have been listed by Coinbase.
There’s a reason for this. Coinbase has been working hard to ensure that they won’t be sued by the SEC. By working with regulators, they’re ensuring that a digital asset that they list follows the guidelines of the SEC. They’re also working to ensure that a digital asset that they list won’t be recognized as a security by the SEC. They’re doing this just in case they do get sued by the SEC, the charge being illicitly distributing unregistered securities products.
We’ve reported how Jay Clayton, the chairman of the SEC, explained the views of the SEC – that most ICOs in the global market are securities, and therefore, fall under the purview of the commission. He said:
“We don’t believe Bitcoin is a security. Many of the ICOs that you see and you talk about, they are securities. And if you’re going to offer or sell securities, you have to do so in compliance with our laws. We’ve been clear about that, the recent actions further emphasized that our securities laws to apply to the ICO space, and if people are going to raise money using initial coin offerings they either have to do so in private placement or register with the SEC.”
Again, to wrap this all up – promoting an ICO, aka a securities for all intents and purposes, without disclosing compensation to potential investors, could be a securities violation. If successfully charged, the penalty is quite severe – 2x the amount of the compensation itself, as was the penalty for Floyd Mayweather, who paid over 600k for receiving 300k in compensation to promote 3 ICOs.
Promotions like this is why cryptocurrency has the reputation that it does – that it’s the Wild West. There aren’t clearly defined laws or regulations on cryptocurrency. Yet. But there will be. We here at CryptoTraders Pro refrain from breaking the law, especially when it comes to the SEC. They don’t mess around. So when you’re researching an ICO, consider the source. Is it legitimate? Is someone promoting this that has no business promoting an ICO? If someone like Mayweather is promoting a boxing product, consider it! If someone like DJ Khaled is peddling an economic product, maybe consider the source.
Let us know what you think about all of this. Will this help the cryptocurrency economy? Will regulation help? We know financial institutions are just WAITING to get in on this cryptocurrency craze. What’s your plan to take advantage of the next bull run? Let us know on our Facebook Page!
