The US Securities and Exchange Commission (SEC) have requested the public not to indulge in investing in token offerings (ICO) on the basis of celebrities’ advice. The SEC suggested that celebrities who promote investment might be investing illegally but people should conduct proper research before investing.
A public statement warning celebrity endorsements of token offerings
“may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement”
was jointly released by the SEC’s Division of Enforcement and the SEC’s Office of Compliance Inspections and Examinations on November 1. SEC’s Office of Investor Education and Advocacy (OIEA) also proclaimed an alert on the same day to the investors-to-be advising to not make investment decisions based solely on celebrity endorsements.
Token offerings (or ICOs) are a popular secure funding method for startups established using blockchain technology. The alert issued for public concern highlights that it is never a good idea to make an investment decision just because someone famous says a product or service is a good investment. The SEC also supports investors to research potential investments rather than rely on paid endorsements from icons who often do not have sufficient expertise to ensure that the investment is appropriate and in compliance with federal securities laws.
The warning declares that celebrities maybe promoting investment for praising a product such as a financial stake in that product’s success or they themselves might have been trapped in such fraudulent investment scheme. According to findings of Commission in its investigation of The DAO, celebrities who promote tokens that double as securities but fail to “disclose the nature, scope, and amount of compensation received in exchange for the promotion” due to “violation of the anti-touting provisions of the federal securities laws.” These icons“may also be liable for potential violations of the anti-fraud provisions of the federal securities laws, for participating in an unregistered offer and sale of securities, and for acting as unregistered brokers.”
Methods to research investment opportunities are also provided to the investors before investing in them. Several online resources such as the link to an OIEA bulletin from August 2017 that discusses token offering scams etc. are ready to help them for this purpose. These warnings were issued after many rumors circulated around celebrity token offering endorsements. Some of the celebrities include Floyd Mayweather, DJ Khaled, Ghostface Killah, Jamie Foxx, and Paris Hilton.