As cryptocurrency investors, many of us are undoubtedly familiar with some of the popular YouTubers who promote various products and services. However, it appears that these creators may have negligently promoted a now-disgraced cryptocurrency exchange, FTX. The plaintiffs in this new class action lawsuit allege that these individuals should be held liable for their role in promoting FTX to their large audiences, even though they were certainly aware of its troubles.
Edwin Garrison, the plaintiff in the lawsuit filed against FTX CEO Sam Bankman-Fried and celebrity promoters like Tom Brady, Stephen Curry, Shaquille O’Neil, Larry David, Kevin O’Leary and others alleges that these individuals are fraudsters who have ripped off innocent investors. The bulk of the plaintiff’s case revolves around Bankman-Fried’s alleged fraudulent acts as CEO of FTX – which has resulted in over US$27 million in losses for Mr. Garrison personally.
Both Kim Kardashian and EthereumMax fell victim to FTC+ guidelines for social media influencers when it came to disclosing payment. Kardashians case involved spending $250,000 on promoting the EMAX token, which was not properly disclosed to her followers. EthereumMax also made headlines last year after settling with the FTC+, whoclaimed they failed to properly disclose that they were being paid by EMAX to promote their digital asset. By following FTC+ guidelines for social media influencers, both companies avoided potential backlash from their followers and potential lawsuits.
The lawsuit alleges that FTX paid Defendants handsomely to promote its brand and encourage their followers to invest, but did not disclose the nature and scope of their sponsorship deals, payments and compensation, nor conduct adequate (if any) due diligence. This lack of disclosure may have led some investors to believe that FTX was an independently funded company rather than a product of the mutual fund industry lobby.
In a recent lawsuit, several influencers are accused of stealing ideas from other businesses. Kevin Paffrath, an influencer implicated in the lawsuit, denies the allegations and says that he has always been open about sharing his ideas with others.
Paid promotion is a common practice in digital media, whereby businesses pay for advertising space on other people’s content to promote their products or services. These ads are not always labeled as such, and can be included in any type of content without the user’s knowledge. Regardless of whether or not these ads are labeled as such, many users find them intrusive and disruptive to the overall viewing experience.
The lawsuit alleges that the YouTubers participated in a civil conspiracy with FTX and misled customers “with the false impression that any cryptocurrency assets held on the FTX Platform were safe and were not being invested in unregistered securities.” The suit also claims that customers lost money as a result.
In order to bolster investor confidence in the cryptocurrency market, the SEC chair has asserted that existing securities laws apply to cryptocurrencies. This lack of clarity makes it more challenging for cypto companies and influencers alike to know when to abide by more intense standards for the advertisement of securities. However, this ambiguity could also be indicative of the SEC’s current lack of understanding and awareness about cryptocurrencies.
In the Kardashian case, the celebrity was required to disclose her payment to promote investing in securities. This is a reminder to all celebrities and others that the law requires them to disclose any financial relationships they have with companies or individuals who are marketing securities products.
If it is determined that these YouTubers were paid in FTX, and not in traditional currency, then they may be held liable for not disclosing exactly how much FTX was gifted to them. This could result in negative publicity for the companies who sponsored these videos, as well as financial repercussions for the YouTubers.