State authorities in Texas are investigating celebrity athletes associated with FTX for their involvement with the failed exchange.
The Texas State Securities Board announced the launch of a probe to determine if celebrity endorsements of FTX violated securities laws. The authorities are targeting star athletes Tom Brady and Steph Curry, among others who promoted the cryptocurrency exchange.
Last year, Brady, his then wife Gisele Bündchen, as well as Curry and other sports stars signed deals with FTX. In exchange for equity share in the company, these celebrities became global ambassadors for the brand.
Several appeared in commercials promoting the exchange’s ease of use and trustworthiness. With the collapse of the exchange these endorsement deals fell through, but these celebrities have also lost their credibility.
State Securities Violations
Last week, Curry, Brady and Bündchen were among the defendants named in a class action lawsuit against Sam Bankman-Fried. The lawsuit filed in Florida claims that Bankman-Fried violated securities laws by using celebrity endorsement to target “unsophisticated investors.”
Authorities in Texas said they had started cooperating with other state securities regulators on the issue of these celebrity endorsements. They said that other state regulators could announce parallel investigations in the coming weeks or months. One source intimated that federal intervention could be another potential outcome of the investigation.
Celebrity Endorsement Disclosures
The director of enforcement at the Texas State Securities Board, Joe Rotunda, said the regulator is scrutinizing the endorsement deals. It will look at the terms of the deals, the payments and disclosures made, and their accessibility to retail investors.
These would not be the first celebrities scrutinized over the disclosures of their cryptocurrency endorsements. In Sept., the SEC fined Kim Kardashian $1.26 million for her failure to disclose payment for a crypto endorsement. Such infringements typically draw significant fines from violators, rather than resulting in a criminal conviction or prison sentence.
One expert said that the level of a celebrity’s understanding of a product they are endorsing is a crucial factor. If they fail to fully grasp that product, their advocacy for it could be construed as misrepresentation. If authorities consider the product a security, the promotion could potentially constitute a violation of state securities laws.
Bankman-Fried’s empire came toppling down over the course of a week, earlier this month. A news story prompted Binance CEO Changpeng Zhao to liquidate the exchange holdings of FTX tokens. This then triggered a massive selloff of the tokens, which caused a liquidity crisis for FTX, ultimately resulting in its bankruptcy.
Since then, associated firms have been struggling, while other exchanges have gone out of their way to prove their solvency. Several authorities have launched investigations into the company’s dealings, as the firm’s new leadership attempts to do the same. While total losses are still unknown, reports estimate that FTX lost between $8-12 billion of investor funds.
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