The SEC has issued and settled charges against professional boxer Floyd Mayweather Jr and music producer Khaled Khaled, known as DJ Khaled, for failing to disclose payments they received for promoting investments in Initial Coin Offerings (ICOs).
These are the SEC’s first cases to charge touting violations involving ICOs.
The SEC’s orders found that Mayweather failed to disclose promotional payments from three ICO issuers, including USD100,000 from Centra Tech Inc, and that Khaled failed to disclose a USD50,000 payment from Centra Tech, which he touted 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 USD200,000 to promote the other two ICOs.
Mayweather and Khaled’s promotions came after the SEC issued its DAO Report in 2017 warning that coins sold in ICOs may be securities and that those who offer and sell securities in the US must comply with federal securities laws. In April 2018, the Commission filed a civil action against Centra’s founders, alleging that the ICO was fraudulent. The US 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 USD300,000 in disgorgement, a USD300,000 penalty, and USD14,775 in prejudgment interest. Khaled agreed to pay USD50,000 in disgorgement, a USD100,000 penalty, and USD2,725 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.
“These cases highlight the importance of full disclosure to investors,” says Enforcement Division Co-Director Stephanie Avakian. “With no disclosure about the payments, Mayweather and Khaled’s ICO promotions may have appeared to be unbiased, rather than paid endorsements.”
“Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements,” says Enforcement Division Co-Director Steven Peikin. “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.”
The SEC’s investigation, which is continuing, is being conducted by Alison R Levine of the New York Regional Office and Jon A Daniels, Luke M Fitzgerald, and John O Enright of the Enforcement Division’s Cyber Unit. The case is being supervised by Cyber Unit Chief Robert A Cohen.