- Sarah Manne
The SEC's Case Against Celebrity Crypto Endorsements
Today, influencing has become a huge market. Actors, singers, TikTokers, reality TV stars, and social media figures make significant amounts of money to promote new products. They sell anything and everything on their various social media accounts. A problem facing regulators today is that celebrities are being paid to promote this product to their adoring fans, who may not know that this promotion is not genuine because the sponsorship is not often disclosed.
Influencing is a largely unregulated market. Despite how large this industry has become, there are few rules and regulations surrounding it. In the US however, per recent reforms to the 1940 Investment Advisers Act, if celebrities and influencers are paid to promote a product, they must disclose that their post is an ad and that they are sponsored. However, there are some companies and public figures that do not disclose their sponsorships. Paid promotions are not always labelled as being paid, even if they should be labelled as such. Would customers still believe their favourite singer’s words are genuine after learning that they were paid to say them?
On March 22nd, the US Securities and Exchange Commission (SEC) charged eight public figures and Justin Sun, the founder of the crypto company Tron, under the claims that they did not disclose their ads for this company as ads. Some of the celebrities charged in this case include Lindsay Lohan (actress), Jake Paul (social media figure), Soulja Boy (rapper), Lil Yachty (rapper), and Austin Mahone (singer). Each of these individuals has millions of followers across their social media platforms; Lindsay Lohan has 12.8 million followers on Instagram alone. Not only did she post an ad without disclosing that she was paid for the post, but she also promoted a fraudulent product. The crypto currency that she was paid to endorse was manipulated to seem more active than it actually was.
Sun is currently facing additional charges, including that of fraud, from the SEC regarding his crypto companies. For instance, the SEC charged him for the unregistered sale and offer of Tronix and BitTorrent (TRX and BTT) respectively. Sun is a Grenadian entrepreneur and the owner of three crypto companies (Tron Foundation Limited, BitTorrent Foundation Ltd. and Rainberry Inc.), all of which are being investigated as part of this SEC case.
The Director of the Division of Enforcement at the SEC, Gurbir S. Grewal states that “while we’re neutral about the technologies at issue, we’re anything but neutral when it comes to investor protection.” The SEC’s main purpose is to protect investors and customers from market manipulation in all economic sectors. Sun allegedly manipulated his crypto businesses into looking successful and active when they were not. Through his various crypto companies, Sun allegedly targeted American investors, illegally made millions by taking advantage of those investors, and conducted unregistered and misleading trade. The SEC states that the fraud present puts investors at risk as they invested in these products without proper disclosure.
The charges filed against the celebrities were part of a much larger case involving Sun and his many fraudulent crypto companies' activities. The SEC alleges that it was Sun who sought out these public figures to promote his crypto currencies to their millions of followers and told them not to disclose their sponsorship. Soulja Boy and Austin Mahone are the only celebrities involved with this case that did not agree to pay a combined $400,000 to settle. This payment does not indicate an admittance or denial of guilt.
Requirements and regulation around the economics of social media and crypto currency have become increasingly important today. The sheer impact of technology on society creates new problems to be fixed by the law. This case exemplifies how the law regulates economic markets in any and every sector. Technology is innately innovative and new, so the law must adapt to that too. Agencies such as the SEC must be prepared to properly deal with aspects of technology, like crypto and social media, as they are not going away anytime soon and profoundly affect our economy and society.