SEC Files Charges Against Crypto Entrepreneur and Celebrity Marketers

The SEC filed a complaint against a crypto asset entrepreneur and his wholly-owned companies for (i) unregistered trading of crypto asset securities, (ii) manipulative trading practices and (iii) creating a publicity campaign for his crypto securities without disclosing that the celebrities involved were being compensated.

In the Complaint, filed in the United States District Court for the Southern District of New York, the SEC alleged that the entrepreneur and his companies offered and sold crypto assets as securities but failed to file registration statements with the SEC. The SEC also alleged that the entrepreneur created secondary markets for his crypto securities using “hundreds of thousands” of wash trades. The SEC stated that the entrepreneur and his companies paid several celebrities to promote the companies’ crypto securities on social media; however, the celebrities failed to disclose to their millions of social media followers that they had in fact been paid to do so. The SEC charged that the entrepreneur misled the public to believe that the celebrities had an “unbiased” interest in the crypto securities. Further, the SEC alleged that although the entrepreneur publicly asserted that if “any celebrities are paid to promote [the Companies], we require them to disclose,” it was the entrepreneur himself who arranged the payments to the celebrities and directed them not to disclose the payments.

In the Complaint, the SEC requested that the entrepreneur and his Companies be (i) permanently restrained and enjoined from further regulatory violations, (ii) permanently prohibited from acting as officers or directors of any issuers that have registered securities and (iii) ordered to disgorge of all ill-gotten gains and pay civil monetary penalties.

The SEC is also requesting that the two celebrities that did not agree to pay monetary penalties be (i) permanently restrained and enjoined from further regulatory violations, (ii) prohibited from accepting any form of compensation in connection with promoting any form of a crypto asset security and (iii) ordered to pay civil monetary penalties. In related SEC Administrative Proceedings, with the exception of the two celebrities, those charged in connection with the entrepreneur’s publicity campaign agreed to pay monetary penalties totaling in over $400,000 without admitting or denying the SEC’s findings.