SEC Charges Floyd Mayweather Jr. and DJ Khaled for ‘Unlawfully Promoting’ ICOs

SEC Charges Floyd Mayweather Jr. and DJ Khaled for ‘Unlawfully Promoting’ ICOs
Siamak Masnavi

On Thursday (29 November 2018), the U.S. Securities and Exchange Commission (SEC), announced that it had settled charges against American professional boxer Floyd Mayweather Jr. as well as American DJ and music producer Khaled Khaled (better known as "DJ Khaled") for "failing to disclose payments they received for promoting investments in Initial Coin Offerings (ICOs)," and said that these were "the SEC's first cases to charge touting violations involving ICOs."

The Case Against Floyd Mayweather Jr

The SEC order against 41-year-old Las Vegas resident Mayweather says that cease-and-desist proceedings are being instituted "pursuant to Section 8A of the Securities Act of 1933."

It goes on to say that:

  • Between July 2017 and September 2017, Mayweather "touted on social media three securities that were being offered and sold in Initial Coin Offerings... without disclosing that he was being compensated for giving such securities publicity by the entities offering the securities," and that "this failure to disclose this compensation violated Section 17(b) of the Securities Act, which makes it unlawful for any person to promote a security without fully disclosing the receipt and amount of such consideration."
  • During the aforementioned period, "Mayweather promoted three ICOs on his Instagram, Twitter, and Facebook accounts, in exchange for financial payments from each of the ICO issuers. In total, Mayweather received approximately $300,000 for these promotions."
  • One of the ICO issuers was Centra Tech, Inc, and between July 2017 and October 2017, it "offered and sold" Centra (CTR) tokens, which the SEC believes are "investment contracts" and hence "securities pursuant to Section 2(a)(1) of the Securities Act."
  • Centra paid Mayweather $100,000 for promotions of its ICO on Instagram, Facebook, and Twitter.
  • "Each of Mayweather’s ICO promotions occurred after the Commission warned in its July 25, 2017, DAO Report of Investigation that virtual tokens or coins sold in ICOs may be securities, and those who offer and sell securities in the United States must comply with the federal securities laws."
  • Mayweather violated Section 17(b) of the Securities Act, which makes it unlawful for any person to

"publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof."

  • Mayweather has submitted an Offer of Settlement (without admitting or denying the SEC's findings), which the Commission has decided to accept.
  • Mayweather has agreed to 

    "for a period of three (3) years from the date of this Order, forgo receiving or agreeing to receive any form of compensation or consideration, directly or indirectly, from any issuer, underwriter, or dealer, for directly or indirectly publishing, giving publicity to, or circulating any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security , digital or otherwise, for sale, describes such security"

    and to "continue to cooperate with the Commission’s investigation in this matter."
  • Mayweather must pay "disgorgement of $ 300,000, prejudgment interest of $ 14,775.67, and a civil money penalty in the amount of $ 300,000."

 

The Case Against DJ Khaled

The SEC order against 43-year-old Los Angeles resident Khaled also says cease-and-desist proceedings are being instituted "pursuant to Section 8A of the Securities Act of 1933."

Here is a summary of the order:

  • In September 2017, Khaled "touted on social media a security that was being offered and sold in an Initial Coin Offering... without disclosing that he was being compensated for giving such security publicity by the entity offering the security, and that "this failure to disclose this compensation violated Section 17(b) of the Securities Act, which makes it unlawful for any person to promote a security without fully disclosing the receipt and amount of such consideration."
  • "On or about September 27, 2017, Khaled promoted Centra’s ICO on social media by posting to his Instagram and Twitter accounts a picture of himself holding a Centra Card with the caption: 'I just received my titanium centra debit card. The Centra Card & Centra Wallet app is the ultimate winner in Cryptocurrency debit cards powered by CTR tokens! Use your bitcoins, ethereum, and more cryptocurrencies in real time across the globe. This is a Game changer here. Get your CTR tokens now!'"
  • "Centra paid Khaled $50,000 for the September 27, 2017 social media post. Khaled did not, however, disclose the fact or amount of consideration he was receiving from Centra for making this post."
  • "Khaled’s September 27, 2017 post giving publicity to Centra’s ICO occurred after the Commission warned in its July 25, 2017 , DAO Report of Investigation that virtual tokens or coins sold in ICOs may be securities, and those who offer and sell securities in the United States must comply with the federal securities laws."
  • Khaled violated Section 17(b) of the Securities Act.
  • Khaled has agreed to "for a period of two (2 ) years from the date of this Order, forgo receiving or agreeing to receive any form of compensation or consideration, directly or indirectly, from any issuer, underwriter, or dealer, for directly or indirectly publishing, giving publicity to, or circulating any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security, digital or otherwise, for sale, describes such security."
  • Khaled must "pay disgorgement of $ 50,000, prejudgment interest of $2,725.72 , and a civil money penalty in the amount of $100,000."

Comments by the SEC Following Settlement of the Charges 

Stephanie Avakian, Co-Director of the SEC's Enforcement Division, said:

"These cases highlight the importance of full disclosure to investor. With no disclosure about the payments, Mayweather and Khaled's ICO promotions may have appeared to be unbiased, rather than paid endorsements."

And Steven Peikin, another Co-Director of the SEC's Enforcement Division, stated:

"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."

 

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