In the viral Super Bowl commercial for FTX, Larry David appeared in several different skeptical incarnations. The other famous people should have listened to him before the cryptocurrency exchange crashed. Celebrities like the creator of Seinfeld and Curb Your Enthusiasm are being sued for allegedly helping to promote FTX’s services and products. The lawsuits state that they duped naive investors into investing in the fraud.
The company and its co-founder, Sam Bankman-Fried, are effectively broke, and legal experts say the celebrities are an easy mark for investors looking to recoup some of their losses. This month, FTX filed for bankruptcy protection for itself and more than a hundred of its subsidiaries and affiliates. Bankruptcy laws do not protect the promoters. According to John Reed Stark, former head of the US Securities and Exchange Commission’s Office of Internet Enforcement, “a lawsuit against celebrities will generate a ton of money, because they will all settle.” “The sale of a T-shirt bearing one’s likeness is one way to make money off one’s fans. It’s one thing to promote something that helps you make a buck and quite another to help someone lose everything they’ve worked for.”
Since FTX’s demise, at least three lawsuits have been filed, including one that seeks to represent “thousands, if not millions, of consumers nationwide.” Defendants include Tom Brady, Gisele Bundchen, Stephen Curry, Shaquille O’Neal, and businessman and TV personality Kevin O’Leary. Suppose investors can prove that celebrities didn’t disclose that they were paid to promote the crypto exchange, had invested in the company or were peddling unregistered securities. In that case, the celebrities could be held liable. Legal proceedings are currently ongoing in federal courts in Miami and San Francisco. Representatives for the celebrities were unresponsive to requests for comment about the lawsuits.
Investors in the United States lost over $11 billion due to FTX’s unexpected collapse, according to a lawsuit filed in Miami on November 15. In 2018, the platform’s 5 million users transacted over $700 billion in cryptocurrency. Celebrity endorsements can result in legal action, but only if the endorsed products are securities, according to attorney Shane Seppinni, who is not involved in the FTX cases but represents clients in cases involving allegations of corporate wrongdoing. He warned that “celebrities who promoted them could be on the hook for big damages” if FTX’s yield-bearing accounts, which pay interest on crypto holdings, are deemed to be securities.
The Howey Test is frequently used by courts to decide whether or not an item is a security. An investment in “a common enterprise with profits to come solely from the efforts of others,” as defined by a 1946 Supreme Court decision, is called security. The court ruled that “whether the enterprise is speculative or nonspeculative or whether there is a sale of property with or without intrinsic value,” the item in question must meet that definition.
Last month, Joseph Rotunda, director of enforcement for the Texas State Securities Board, filed a declaration stating that the yield-bearing accounts constitute an offering of unregistered securities. Further, it violates securities law to promote securities without disclosing the origin, nature, or amount of any compensation received in exchange for doing so.
On Monday, Rotunda stated that his office was reviewing the payments and disclosures made by the celebrities. As part of the larger investigation into FTX’s failure, the regulator is “taking a close look at them,” he said.
In 2021, Brady and Bundchen participated in the company’s $20 million advertising campaign by filming a commercial titled “FTX. You In?” in which they enthusiastically invited their friends to become members. According to the Miami complaint, they also acquired shares in FTX Trading Ltd.
O’Leary, of the ABC show Shark Tank and the CNBC show Money Court, invested in and was paid to promote FTX. Elliott Lam, a Canadian citizen living in Hong Kong, claims to have lost $750,000 in an investment with FTX’s interest-bearing accounts, in which he and tennis star Naomi Osaka, who is also being sued, promoted the product. Lam has filed a proposed class action lawsuit in San Francisco.
Legal experts have speculated that David’s comedic persona and quirky role in the Super Bowl ad may prove oblique enough to beat the litigation. He was portrayed in the commercial as a cynic who doubted the usefulness of previous innovations like the Sony Walkman and the wheel. Don’t make the same mistakes that Larry did, the advertisement urged. According to the Miami complaint filed by the investor’s attorneys, FTX became one of the most retweeted brands during the game. However, according to the comedian’s attorney Brian Levin, comedian Larry David only has “appearance in commercial” allegations. I can’t fathom how that would ever lead to legal responsibility on anyone’s part.
The “irony” that David played characters in the ad who keep saying no, including to FTX, is “glaring,” according to Stark, the former head of the SEC’s internet enforcement division. You can pick from a wide variety of famous people, he said. To avoid confusing the issue, “I’d probably leave him off.”
According to attorney Demetri Bezaintes, as the fallout from FTX continues to be felt, more lawsuits will be filed against Bankman-Fried and celebrity endorsers in the United States and elsewhere, including South Korea, Singapore, and Japan, where many of the investors are based. A week after their initial complaint was filed in Miami, the same law firm that had initiated the class action lawsuit in Miami initiated a similar lawsuit in South Florida.
Celebrities getting into trouble for promoting cryptocurrencies is nothing new. In Los Angeles, Kim K. and Floyd Mayweather Jr. were sued for allegedly promoting the EthereumMax token. The judge issued a preliminary ruling dismissing the lawsuit on November 7 and finding that the defendants had not promoted the tokens as a security.
Last month, Kardashian settled SEC claims that she broke the rules by promoting the token without disclosing that she was being paid by agreeing to pay $1.3 million and refrain from touting digital assets for three years. For their roles in promoting ICOs on social media in 2018, both Mayweather and music producer DJ Khaled were accused of breaking securities laws. Mayweather paid the SEC over $600,000, while Khaled forked over over $150,000.
Marine Corps Veteran-turned-national-tv-personality Eric Mitchell is a world leading expert in sports media, regularly appearing on the world’s largest outlets from BBC, MSNBC, Fox News, Bloomberg, CNN and more. His signature blend of snark and industry expertise landed him columns at none other than RollingStone, GritDaily, PopWrapped, Disrupt — and most recently — Editor in Chief at NFT Today Magazine. When he’s not making media appearances or running his empire at LifeFlip Media, he can be found entertaining his thousands of loyal followers on social media through his authentic filter-free content.