Floyd Mayweather Jr and DJ Khaled to pay fines over promoting ICO investments

Touting initial coin offerings (ICOs) online can be a risky and expensive activity, as demonstrated by the latest action undertaken by the United States Securities and Exchange Commission (SEC). In a press release published on November 29, 2018, the US regulator announced its first cases to charge touting violations involving ICOs. The targets of the cases are well known – professional boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled.

The SEC said it settled charges against Mayweather and DJ Khaled who had both failed to disclose payments they received for promoting investments in ICOs.

The SEC’s orders found that Mayweather did not disclose promotional payments from three ICO issuers, including $100,000 from Centra Tech Inc, whereas Khaled failed to disclose a $50,000 payment from Centra Tech, which he labeled on his social media accounts as a “Game changer.” Mayweather’s promotions included a message to his Twitter followers that Centra’s ICO “starts in a few hours. Get yours before they sell out, I got mine…”

A post on Mayweather’s Instagram account predicted he would make a large amount of money on another ICO and a post to Twitter said: “You can call me Floyd Crypto Mayweather from now on.” The SEC order found that Mayweather failed to disclose that he was paid $200,000 to promote the other two ICOs.

The SEC notes that, in April 2018, the Commission filed a civil action against Centra’s founders, alleging that the ICO was fraudulent. The U.S. Attorney’s Office for the Southern District of New York filed parallel criminal charges.

Without admitting or denying the findings, Mayweather and Khaled agreed to pay disgorgement, penalties and interest. Mayweather agreed to pay $300,000 in disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest. Khaled agreed to pay $50,000 in disgorgement, a $100,000 penalty, and $2,725 in prejudgment interest. In addition, Mayweather agreed not to promote any securities, digital or otherwise, for three years, and Khaled agreed to a similar ban for two years. Mayweather also agreed to continue to cooperate with the investigation.

Enforcement Division Co-Director Stephanie Avakian, commented that:

“With no disclosure about the payments, Mayweather and Khaled’s ICO promotions may have appeared to be unbiased, rather than paid endorsements.”

Enforcement Division Co-Director Steven Peikin said:

“Social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds.”

Earlier in November, the SEC published its Enforcement Division Annual Report for Fiscal Year 2018 in which the regulator noted the rapid growth of crypto-asset offerings, including ICOs. The exuberance around these markets often obscures the fact that these offerings may be high-risk investments, the SEC said back then Moreover, some of the offerings are simply outright frauds misrepresented as emerging technology. As of the close of FY 2018, the SEC had brought over a dozen stand alone enforcement actions involving digital assets and ICOs.