Washington D.C., USA : The U.S. Securities and Exchange Commission (SEC) today announced settled charges against professional boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled, for failing to disclose payments they received for promoting investments in Initial Coin Offerings (ICOs). These are the SEC’s first cases to charge touting violations involving ICOs.
The SEC’s orders found that Mayweather failed to disclose promotional payments from three ICO issuers, including $100,000 from Centra Tech Inc., and that Khaled failed to disclose a $50,000 payment from Centra Tech, which he touted on his social media accounts as a “Game changer.” 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…”
A post on Mayweather’s Instagram account predicted he would make a large amount of money on another ICO and a post to Twitter said: “You can call me Floyd Crypto Mayweather from now on.” The SEC order found that Mayweather failed to disclose that he was paid $200,000 to promote the other two ICOs.
Mayweather and Khaled’s promotions came after the SEC issued its 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. The U.S. Attorney’s Office for the Southern District of New York filed parallel criminal charges.
Without admitting or denying the findings, Mayweather and 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. In addition, Mayweather agreed not to promote any securities, digital or otherwise, for three years, and Khaled agreed to a similar ban for two years. Mayweather also agreed to continue to cooperate with the investigation.
“These cases highlight the importance of full disclosure to investors,” said Enforcement Division Co-Director Stephanie Avakian. “With no disclosure about the payments, Mayweather and Khaled’s ICO promotions may have appeared to be unbiased, rather than paid endorsements.”
“Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements,” said Enforcement Division Co-Director Steven Peikin. “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.”
The SEC’s investigation, which is continuing, is being conducted by Alison R. Levine of the New York Regional Office and Jon A. Daniels, Luke M. Fitzgerald, and John O. Enright of the Enforcement Division’s Cyber Unit. The case is being supervised by Cyber Unit Chief Robert A. Cohen.
Image : Music producer DJ Khaled (left) and boxer Floyd Mayweather Jr.
EARLIER : What You Need To Know About Initial Coin Offerings (ICOs)
Companies and individuals are increasingly considering initial coin offerings (ICOs) as a way to raise capital or participate in investment opportunities. While these digital assets and the technology behind them may present a new and efficient means for carrying out financial transactions, they also bring increased risk of fraud and manipulation because the markets for these assets are less regulated than traditional capital markets. Here are the three “Rs” of ICOs: Risks, Rewards and Responsibilities.
Five Things You Need To Know About Initial Coin Offerings (ICOs)
ICOs can be securities offerings.
ICOs, based on specific facts, may be securities offerings, and fall under the SEC’s jurisdiction of enforcing federal securities laws.
ICOs may need to be registered
ICOs that are securities most likely need to be registered with the SEC or fall under an exemption to registration.
Tokens sold in ICOs can be called many things
ICOs, or more specifically tokens, can be called a variety of names, but merely calling a token a “utility” token or structuring it to provide some utility does not prevent the token from being a security.
ICOs may pose substantial risks
While some ICOs may be attempts at honest investment opportunities, many may be frauds, separating you from your hard-earned money with promises of guaranteed returns and future fortunes. They may also present substantial risks for loss or manipulation, including through hacking, with little recourse for victims after-the-fact.
Ask questions before investing
If you choose to invest in these products, please ask questions and demand clear answers.
What investors need to know about ICOs
So, what do you need to know about ICOs before investing? Take note of the following:
Products can be sold and traded internationally.
Recognize that these products are often sold on markets that span national borders and that significant trading may occur on systems and platforms outside the United States. Your invested funds may quickly travel overseas without your knowledge. Although the SEC actively enforces securities laws, risks can be amplified, including the risk that market regulators may not be able to effectively pursue bad actors or recover funds.
Research your financial professional
Understand the opportunity that is being presented, and do your homework on the individual who is doing the presenting. Is the offering legal and is the person offering this product licensed to do so?
If an investment sounds too good to be true, be cautious
As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.
Understand how the product is traded
Many platforms for trading digital assets refer to themselves as “exchanges,” which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange.
What market professionals need to know about ICOs
The Chairman of the U.S. Securities and Exchange Commission (SEC), Jay Clayton, has stated that tokens and offerings that feature and market the potential for profits based on the entrepreneurial or managerial efforts of others contain the hallmarks of a security under U.S. law.
Use caution before promoting offers and selling coins
Market participants should use caution when promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions, SEC says. Similarly, those who operate systems and platforms that effect or facilitate transactions in these products should be aware that they may be operating unregistered exchanges or broker-dealers that are in violation of the Securities Exchange Act of 1934.
The SEC protects Investors, and expects you to
Gatekeepers and others, including securities lawyers, accountants and consultants, should be guided by the principal motivation for the SEC’s registration, offering process and disclosure requirements: Investor protection and, in particular, the protection of Main Street investors.
SEC Report of Investigation on Coin or Token Offerings
Market professionals, including securities lawyers, accountants and consultants, are encouraged to read closely the Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 The DAO which the SEC released in 2017, concluding that a particular token was a security, SEC says..
Know when an exchange needs to be registered.
If a platform offers trading of digital assets that are securities and operates as an “exchange,” as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.