“It’s your money that’s on the line, so do your own research and make your own decision based on your own risk tolerance and your own circumstances,” the crypto-friendly Republican commissioner said. “After all, if things turn out badly, the celebrity won’t be there to bail you out.”
The SEC warned investors in 2017 that virtual tokens or coins sold in celebrity-backed initial coin offerings may be securities and therefore must comply with federal securities laws. ICOs are a fundraising method in which companies raise capital, often through their own cryptocurrency issuance.
“Celebrities who endorse an investment often do not have sufficient expertise to ensure that the investment is appropriate and in compliance with federal securities laws,” the SEC said in the 2017 statement.
If a cryptocurrency qualifies as a security, and someone who is compensated for promoting it tweets about it without disclosing that compensation, it’s a 17(b) violation, as seen in the Khaled and Mayweather cases, said Ashley Ebersole, a partner at the law firm Bryan Cave Leighton Paisner and former SEC enforcement lawyer. The reference is to Section 17(b) of the Securities Act.
Another regulator, the Commodity Futures Trading Commission, could also bring enforcement.
“You could potentially see the same thing from the CFTC side, but there would need to be a claim of intent to manipulate the market or of deceptive or fraudulent intent behind those statements,” Ebersole said in an email.
“People have been burned over and over again by Wall Street and the big banks, so they’re turning to cryptocurrencies — dreaming of riding the coattails of professional investors and celebrities who make earning millions look easy,” Senate Banking Chairman Sherrod Brown, D-Ohio, said in an email.
Too often, crypto mirrors Wall Street, where a few get rich at others’ expense, Brown said.
The more crypto is discussed, the more policymakers will want to learn more about it, said Kristin Smith, executive director of the Blockchain Association.
“It puts more pressure on lawmakers to understand this stuff, and often as they tend to understand things, they want to have more oversight and regulatory goals,” Smith said. “It builds the overall pressure for them to act.”
Individual investors shouldn’t make massive investment decisions based on what they see online, Smith said.
“There is a responsibility upon those who do have such influence to make sure that they’re being very careful and accurate in the way that they describe and speak about what’s going on, whether it’s with a crypto asset or some other kind of asset,” Smith said.
Some celebrities are taking a different approach. Actors Ashton Kutcher and Mila Kunis explain through social media posts — including a two-minute YouTube video with the co-founder of Ethereum, Vitalik Buterin — how digital assets work. Buterin and Kunis answer Kutcher’s questions on Ethereum and decentralized finance throughout the video.
“He’s been trying to be a source of information and education as opposed to promoting different cryptocurrencies, which I think is a great role for celebrities interested in this space,” Smith said.
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