February 27, 2020

Hollywood Action Star Settles SEC Charges for Failing to Disclose ICO Promotion Payments

Hollywood actor and producer Steven Seagal settled SEC charges for touting a digital asset offering on social media without disclosing that the issuer was compensating him for his activities.

According to the SEC, Mr. Seagal, who currently resides in Moscow, spent six weeks in 2018 promoting the sale of digital tokens by Bitcoinin2Gen ("B2G") through an initial coin offering ("ICO"). In addition to authorizing social media postings to his over six million followers on Facebook and Twitter, Mr. Seagal allowed his likeness to be used on B2G's website and in its marketing materials, and took part in a webinar with potential ICO investors. Participants in the ICO invested bitcoin, U.S. Dollars or Euros, or made payments via credit cards, in exchange for B2G tokens, which were described by B2G as "the next generation of Bitcoin" and the first step in a comprehensive "ecosystem" designed to stoke demand for the tokens.

The SEC found that Mr. Seagal failed to disclose that B2G had promised him compensation worth $250,000 in cash and $750,000 in B2G tokens for his promotional activities. This violated the "anti-touting" provision in Section 17(b) of the Securities Act, which requires individuals who promote securities in the form of virtual tokens or coins to disclose that they are being compensated and the monetary amount of such compensation.

To settle the charges, Mr. Seagal agreed to repay the $157,000 he received from B2G, and pay $16,448 in prejudgment interest and a civil money penalty of $157,000. He also agreed not to promote any securities products for a period of three years.

Commentary

Mr. Seagal is the latest of several high-profile personalities to get into legal trouble for involvement with ICOs. In 2018, boxer Floyd Mayweather paid over $600,000 and music producer DJ Khaled paid over $150,000 to settle similar SEC charges of failing to disclose payments they received for promoting investments in ICOs. These cases came on the heels of a November 2017 warning by the SEC urging caution around celebrity-backed ICOs and encouraging investors to research potential investments rather than rely on paid endorsements. In another victory for the SEC Enforcement Division's Cyber Unit, Mr. Seagal's settlement shows that even famous celebrity action stars are not "Above the Law."

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