Question: what happens when the worlds of boxing, music production, social influencers, and cryptocurrency all coincide? The answer is a whole heap of trouble, and financial penalties running into hundreds of thousands of dollars.
In addition to being five-time world boxing champion, Floyd Mayweather Jr. has a social media reach of almost forty million followers across Twitter, Instagram, and his official Facebook page. A quick skim through his feeds also indicates that he tweets product endorsements and recommendations as often – if not more often – than personal appearance or other “day in the life of” posts. With a marginally smaller personal reach, but enormous expanded visibility through the acts he works with, DJ Khaled also has a healthy “promotions” aspect to his social media activity.
The trouble with that is that promotion looks like – and often is, especially where large sums are paid for the tweet or post – personal endorsement. And when that tips into the potential area of financial advice with little or no knowledge to back it up, the regulators will take note.
In recent weeks, the Securities and Exchange Commission (SEC) in the US has brought the first ever charges against Khaled and Mayweather for failing to disclose financial incentives to promote cryptocurrency investments, and more specifically ICOs, in their social media feeds.
Of course, the general public are usually under no illusion that a celebrity has been paid to endorse a pair or trainers or a clothing brand, but when it comes to something more personal, like investments, the lines get blurred. Both men were legally required to disclose the fact that the issuers of those cryptocurrency ICOs paid them for their promotional activities, especially as the SEC warned last year that sales of coins from ICOs are subject to federal securities law.
Even though neither man made any declaration – or otherwise – of guilt, they have both agreed to pay the penalties without appeal. In addition, Mayweather agreed not to promote physical or digital securities for three years, and Khaled for two. Mayweather is also co-operating in a further SEC investigation over alleged fraud in relation to an ICO.
The major ICO issuer, Centra Tech Inc., also led investors to believe that they had struck deals with companies such as Mastercard and Visa, as well as soliciting major social media influencers to promote their ICO for financial reward. Mayweather was paid a sum of $300,000 to promote what the issuer claimed would be “the world’s first Multi-Blockchain Debit Card”, allowing users to convert their cryptocurrency to legal tender and spend it. The SEC has filed a civil action against Centra.
There’s no doubt that social media influencers do have a great deal of pulling power when it comes to how we spend our money, and there’s generally no harm – except on your bank balance – buying the goods they are paid to promote. However, with something as personal as investments, the lines are blurred, and their product endorsement can seem like a personal recommendation. Without market and product knowledge, they could end up as easily defrauded as those that follow them.