“We need to meet people where they are, and that means embracing skepticism.” This is what the former CEO of FTX Sam Bankman-Fried he said in a statement announcing the company’s Super Bowl ad featuring comedian Larry David on Feb. 13. In the one-minute commercial, David pushes some of history’s greatest technological and scientific inventions from the wheel to the light bulb. The subtext: This guy is always wrong.
The commercial concludes as David cringes at the thought of using FTX, a moment meant to be comical, but now appearing prophetic after the cryptocurrency exchange, once valued at $32 billion, bankruptcy petition.
Adding to the irony of David’s comedic distaste for FTX, the TV star is now being sued, along with many other celebrities, for their involvement as paid FTX endorsers. In the class action lawsuit, filed in Miami by an FTX customer on Nov. 16, there are also other celebrities who have publicly endorsed FTX, including Tom Brady, Gisele Bundchen, Shaquille O’Neal, Shohei Ohtani, Trevor Lawrence, Naomi Osaka, Stephen Curry, David Ortiz, Udonis Haslem and Kevin O’Leary. That of the National Basketball Association Golden State Warriorswhich entered into an agreement with FTX in 2021 making it the team’s official cryptocurrency platform also named.
The first of what is likely to be a mountain of lawsuits
Edwin Garrison filed the proposed lawsuit against Bankman-Fried and her celebrity cohort in Miami on Nov. 16. Oklahoma resident, who says he invested in FTX interest-bearing account using cryptocurrency hoping to earn interest on his investment, seeks unspecified damages, but claims FTX clients lost about 11 billion dollars.
“Although the defendants disclosed their partnerships with FTX entities,” a section of the lawsuit reads, “they never disclosed the nature, scope and amount of compensation they personally received in exchange for promoting the deceptive platform FTX, that the SEC explained that failure to disclose this information would be a violation of the anti-touting provision of the federal securities laws.
It is true that the FTC prohibits misleading advertising and endorsements. “Advertisers are subject to liability for false or unsubstantiated statements made through endorsements or for failing to disclose material connections between them and their supporters,” the statement reads. Federal Trade Commission website (PDF). “Supporters can also be held responsible for statements made in the course of their endorsements.” But Garrison and his potential co-plaintiffs may have a hard time holding sports celebrities accountable for FTX’s alleged unscrupulous dealings.
“Accounters are held accountable for failing to disclose or share an honest opinion or belief,” says Aron Solomon, lead legal analyst at Esquire Digital, a digital marketing agency for lawyers.
Celebrity crypto endorsements are risky for everyone involved
Celebrities who promote cryptocurrency have been successfully penalized in the past for violating disclosure rules. In an unrelated cryptocurrency case in October, TV star and social media influencer Kim Kardashian he was fined $1.26 million for failing to disclose the fact that she was paid to back EthereumMax cryptocurrency on Instagram. In 2018, the Securities and Exchange Commission (SEC) fined boxer Floyd Mayweather and rapper DJ Khaled a total of $600,000 for failing to disclose that they were paid to approve the Cryptocurrency Centro Tech project.
In both of these cases, celebrities have clashed with the The SEC’s anti-touting rules which prohibit the promotion of securities (section 17b of the the Securities Act of 1933), without specifying that it was a paid advertisement. In this respect, the celebrity endorsements of FTX differ from the previous cases because in almost all cases FTX disclosed, via press releasesthat associated celebrities were participating in marketing campaigns.
“If the plaintiffs can prove that Tom Brady [knew] whether FTX was a scam or something [he knew Bankman-Fried] was a criminal in training, then, sure, they have a chance to go after them successfully,” Solomon says. “I don’t think any of these celebrity endorsers would risk their reputations for one second by deceiving the public here.”