Celebrities Who Endorsed Crypto, NFTs Land in Legal Crosshairs After Investor Losses Prominent endorsers named as defendants in class-action lawsuits, while agents warn clients away from future deals Crypto’s Crash Has Been Swift but Largely Self-Contained. Here’s Why. YOU MAY ALSO LIKE Crypto’s Crash Has Been Swift but Largely Self-Contained. Here’s Why.Play video: Crypto’s Crash Has Been Swift but Largely Self-Contained. Here’s Why. Crypto imploded in 2022, as investors lost faith in digital assets and the industry was plagued with crisis. But unlike other collapses, it has largely avoided rippling into other markets. WSJ explains how crypto became so interconnected. Illustration: Mallory Brangan By Corinne Ramey , James Fanelli and Imani MoiseUpdated Jan. 30, 2023 12:34 pm ET Madonna sang the praises of nonfungible tokens, or NFTs, depicting cartoon portraits of bored apes. Tampa Bay Buccaneers quarterback Tom Brady appeared in commercials endorsing crypto exchange FTX, which collapsed suddenly in November. And Kim Kardashian gushed about EMAX tokens on Instagram. Now they and other celebrities are facing civil lawsuits from investors who suffered losses on virtual assets, as well as scrutiny by regulators for allegedly duping the investing public. The legal actions, which have prompted some agents to caution their clients against financial endorsements, could clarify the ground rules for crypto promotions, as well as the hurdles investors must clear to hold promoters liable when investments go south. “Promoting a company and promoting a security issued by a company are not necessarily the same thing,” said Tibor Nagy Jr., an attorney who represents both plaintiffs and defendants in the cryptocurrency space. “We should expect judicial guidance and clarity on the rules of the road for celebrities in the next few months.” The use of celebrity promoters heated up in 2021 during the massive bull run in crypto. Last year, celebrity crypto ads filled prominent slots in the Super Bowl, the largest marketing event of the year. Lawyer Sean Masson, of law firm Scott + Scott, who has filed several proposed class-action suits, said celebrities found they could be compensated simply for touting a token, without realizing their legal obligations under federal and state rules governing endorsements and compensation. “All that fast, easy money swirling around attracts people,” Mr. Masson said. Tampa Bay Buccaneers quarterback Tom Brady appeared in commercials endorsing FTX, a crypto exchange that collapsed in November.PHOTO: JEFFEREE WOO/ZUMA PRESS In December, one of his lawsuits targeted technology company Yuga Labs, which develops nonfungible tokens. The suit also names Madonna and a half-dozen other celebrities as defendants, accusing them of violating California state consumer protection statutes and federal securities laws by inducing investors to purchase Bored Ape Yacht Club NFTs—at artificially inflated prices—without disclosing they had been compensated for their promotions. In March, Madonna posted on Twitter pictures of an ape NFT and herself, saying, “I finally entered the MetaVerse.” Two months later, she received a Bored Ape Yacht Club NFT valued at nearly a half-million dollars as compensation, the lawsuit alleges. Later she promoted the NFTs in media interviews, saying she “was hellbent on getting an Ape,” the lawsuit said. A representative for Madonna said she paid for her ape NFT. A spokesman for Yuga Labs said in a statement that the lawsuit’s allegations were without merit. “We have never paid anyone, famous or not, to join the club,” the representative said. Singer Madonna is one of the celebrities named as defendants in a lawsuit targeting tech company Yuga Labs, which develops nonfungible tokens.PHOTO: EDUARDO MUNOZ/REUTERS In Florida, a federal lawsuit alleges celebrity promotion of defunct crypto exchange FTX by Mr. Brady and others drove consumers to invest in unregistered securities sold on the company’s platform. “This was something where, in part because of the promotions, everybody thought it was safe,” said lawyer David Boies, who is representing the plaintiffs. The defendant celebrities disclosed their FTX partnerships but the lawsuit alleges they violated Florida securities and consumer-protection laws by failing to provide specific information on their compensation in exchange for their promotion. They are also accused of failing to perform due diligence ahead of promoting FTX products. A lawyer for Mr. Brady declined to comment. Plaintiffs in the new batch of cases make a mix of claims, some under federal law and others brought under state laws that impose a range of legal requirements on the promotion of financial products. Some lawsuits also have cited state laws prohibiting unfair business practices. SHARE YOUR THOUGHTS What legal responsibility do celebrities have for crypto endorsements? Join the conversation below. The U.S. Securities and Exchange Commission has said that celebrities who promote virtual tokens it considers securities must disclose the nature, scope and amount of compensation they receive. But outside of case-by-case enforcement actions, the commission hasn’t specifically articulated its views on what digital assets fall under these obligations, leaving the legal landscape uncertain, lawyers say. “The SEC hasn’t shared its view on most if not all of the most widely traded tokens,” said lawyer Philip Moustakis, a partner at Seward & Kissel LLP. “If they had done that, there would be far more clarity for investors and far more clarity for the markets.” An SEC spokesman pointed to the agency’s publicly available framework for determining whether digital assets are securities. Most suits, filed relatively recently, haven’t yet produced notable rulings. But a federal judge in California dismissed a proposed class-action lawsuit against Ms. Kardashian and other celebrities, saying the plaintiffs hadn’t sufficiently made allegations that celebrity promoters had conspired with others to pump up the value of digital tokens. “The court acknowledges that this action raises legitimate concerns over celebrities’ ability to readily persuade millions of undiscerning followers to buy snake oil with unprecedented ease and reach,” U.S. District Judge Michael Fitzgerald wrote. “But, while the law certainly places limits on those advertisers, it also expects investors to act reasonably before basing their bets on the zeitgeist of the moment.” Michael Rhodes, Ms. Kardashian’s lawyer, said he was pleased with the “well-reasoned ruling.” Some defendants had argued that the suit didn’t show that investors had relied on celebrity promotion. “Crucially, no named Plaintiff alleges that they in fact viewed either Instagram post before purchasing Tokens during the relevant time period,” lawyers for Ms. Kardashian wrote in a court brief. With the judge’s permission, the plaintiffs filed an amended complaint refining their allegations. Even before the crypto bust, there were potential dangers for celebrity endorsements of financial products, and some financial firms themselves weren’t enthusiastic about entering into such deals. “When you start talking about money there’s a lot of guardrails put up,” said Tony Mulrain, co-chair of the sports law practice at law firm Holland & Knight. “Convincing your fans to buy a certain brand of bleach is not regulated as harshly as if this person put their entire life savings into a security because someone that they value and respect said so.” Leigh Steinberg, a sports agent who has represented athletes including Kansas City Chiefs quarterback Patrick Mahomes, said there are many other product categories that present marketing opportunities without the same risks. “Someone can do a great portfolio of powerful marketing agreements without ever touching areas that are more fraught with peril,” he said. Write to Corinne Ramey at corinne.ramey@wsj.com, James Fanelli at james.fanelli@wsj.com and Imani Moise at imani.moise@wsj.com
Since when have these celebrities become financial experts? If they're not experts, why the hell are they in the business of "endorsing" anything that they know nothing about? By the same token, who are these idiots that base their investment decisions on those endorsements? (If the celebrities endorse jumping out the window from the 10th floor is good for your health, I bet there are some that would literally believe them.) Scammers and scammed are really the two faces of the same coin.
Why? They got paid to say things. Not that they understand a thing about anything outside of their domain. Their promoters and managers set up most of this bullshit for them because they would otherwise not have the slightest clue what to do with the money they "earn"
I would hope being a celebrity with a large fan base comes with a responsibility. At the very least, you shouldn't dupe your fans, even though they're stupid enough to follow anything you say. But celebrities these days don't seem to give a shit about anything but their own gratification.
That's why I don't watch TV or follow any social media. Back in the 80s, before the Internet, information was soooooooo difficult to find. I literally had to go down to the library to find accessible information. Then I had to call individuals and literally ask for that info, only to find half of them didn't know it either. Very frustrating, to say the least. Now everything is at your fingertip. You only need to google it. So why are their so many gullible idiots? It just behooves me beyond imagination to think how people can be so naive.
Those investors should have used their common sense, cow sense, 6th sense (if they have) to make wise decisions. Unfortunately for them, their common sense is the most uncommon. They should blame themselves for their foolishness and stupidity, and not the celebrities. They should hide so that we can't see how foolish gullible faces look like.
Which is why I have not followed any of those narcissistic individuals in a long time. I have not watched a single sports event in over 10 years neither on tv nor live, not one penny into the pockets of those selfish pricks. Sports today is a pure theater and money grab, nothing else. Its for poor immigrant families in large cities to take their kids to because they can't afford anything else for their kids. Same with the influencer and starlet cult. Some cared in the past, not so anymore today. Bands like Earth Wind and Fire or Metallica played gigs for free in small towns in the past, spontaneous open air events. Today, they are purely businesses that are profit maximizing and nothing else.