Have celebs learned their lesson from the FTX debacle?



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Leaving a football stadium, Tom Brady makes his presentation for the FTX cryptocurrency trading platform.

“It’s better,” says the revered quarterback as he sifts through a sky-bound investment portfolio on his phone. “And I like it better.”

The announcement, posted on FTX’s Instagram account in September, wasn’t the first time Brady had thrown his formidable weight behind the tech company, but it was likely the last.

A month and a half later, a balance sheet from Alameda Research, a trading company co-founded by former FTX CEO Sam Bankman-Fried, was leaked, triggering a collapse of epic proportions.

Bahamas-based FTX is now bankrupt, and Bankman-Fried is in Palo Alto, California, under house arrest while facing fraud charges. Some of the child prodigy’s closest confidants have turned against him; he has pleaded not guilty.

If the meltdown hasn’t completely subsumed Brady, he hasn’t emerged completely unscathed either. The professional athlete is among several celebrities being sued in a class action lawsuit that alleges they helped promote the sale of unregistered securities in the form of yielding FTX accounts.

The litigation, filed in Miami, has highlighted the important role that high-profile athletes, actors and other entertainers played in promoting FTX. Even though some Legal Experts I think it will be difficult to prove liability, the federal case is forcing a re-examination of how celebrities have engaged in the controversial cryptocurrency industry.

“FTX’s paid endorsement program was clearly designed to use the positive reputation associated with specific celebrities to convince consumers that FTX was a safe place to buy and sell cryptocurrency,” the lawsuit states. “Celebrities have morals and legal obligation knowing that what they are promoting is unlikely to cause physical or financial harm to customers.”

Before its extraordinary implosion, FTX assembled a red carpet of celebrity endorsers, bringing glitz and glamor to the ill-fated house of cards.

Larry David starred in an FTX Super Bowl ad that framed cryptocurrencies as a world-historic innovation on par with the wheel or light bulb.

Shaquille O’Neal asked potential investors: “I’m totally in. What about you?”

Other household names, Steph Curry, David Ortiz, Shohei Ohtani, Naomi Osaka, Kevin “Mr. Wonderful” O’Leary, also promoted the company. All are listed as defendants.

“It’s a warning to these celebrities,” said Adam Moskowitz, one of the lawyers who filed the lawsuit. “If you’re going to take risks, there will be consequences.”

An attorney representing Brady and David declined to comment. Representatives for O’Neal, Curry, Ortiz, Ohtani, Osaka and O’Leary did not respond to requests for comment. O’Neal has distanced himself from the company, framing his role as that of a “paid spokesperson.” O’Leary, known for his role as a celebrity investor on “Shark Tank,” told CNBC’s “Squawk Box” that his involvement in FTX was the result of “groupthink.”

In addition to any lasting reputational damage, it’s likely that Brady and his supermodel ex-wife, Gisele Bündchen, have lost most or all of their sizable financial stake in FTX.

The crypto space has long been flooded with A-listers. Matt Damon, LeBron James, Reese Witherspoon, Snoop Dogg, Steve Aoki, and Steven Seagal have powered various crypto products. A year ago, Jimmy Fallon and Paris Hilton awkwardly traded non-fungible tokens, a specific class of cryptocurrency, on “The Tonight Show.” Cryptocurrency trading was highlighted in a 2021 music video posted by Post Malone and the Weeknd.

And with celebrities come celebrity scandals, especially in an industry as loosely regulated as crypto. The SEC accused Floyd Mayweather Jr. and DJ Khaled in 2018 of failing to disclose that they had been paid to promote crypto tokens; Kim Kardashian suffered a similar fate in October. (At the time, Kardashian’s lawyers said the socialite was fully cooperative and pleased the matter was resolved.)

FTX’s fall has impacted others in the entertainment industry, including former CAA agent Michael Kives, whose fund received a $300 million investment from Bankman-Fried, according to Information. The former CEO reportedly wanted to sign an endorsement deal with music powerhouse Taylor Swift that never came to fruition.

That Hollywood star power seems to overlap quite often with what is otherwise a niche financial vehicle is no coincidence, experts say.

“Celebrity endorsements have been critical to cryptocurrency for a long time,” said Yesha Yadav, associate dean at Vanderbilt Law School whose work focuses on securities regulation. The sector has “relied on celebrities to embed it; for celebrities to use their existing social networks and their credibility and reputation to drive an asset class that has been unknown to many people.”

“They’re really using the celebrity as a pawn to convince unsuspecting consumers to invest,” said Bonnie Patten, executive director of consumer watchdog group Truth in Advertising.

Moskowitz, the lawyer behind the class action lawsuit, said he has been investigating cryptocurrency-related fraud cases for a while: first with low-level scammers, such as a teenager from Kazakhstan, and then with more formal crypto platforms over the past few years. two years.

Now the lawyer wants to hold accountable the many celebrities who he says allowed Bankman-Fried to take advantage of their reputation. Going after celebrity backers offers a quicker path to recover what is owed to FTX victims, Moskowitz told The Times, than trying to extort money from embattled Bankman-Fried and his tattered empire.

“We have people who lost millions of dollars … because they were told that at 8% interest this is the safest investment,” said Moskowitz, who says some of his clients lost their life savings after the famous FTX backers convinced them that it was a safe place to park their money.

“People respect celebrities,” he added. “Right or wrong, people respect them and you gain acceptance in society” by recruiting them as patrons.

Founded in 2019 and valued at $18 billion by 2021, FTX was a symbol of the cryptocurrency industry in part because Bankman-Fried proactively managed political relationships, including through campaign donations, and sought to create an aura of a respectability that much of the rest of the crypto industry, inundated with scams and price fluctuations, lacked. This summer, as the industry struggled, FTX offered buyouts and takeover offers to other cryptocurrency companies, even when ordered by the Federal Deposit Insurance Corporation to stop suggesting that cryptocurrency investments were government-backed.

The company’s reputation began to truly collapse in November with the Alameda Research balance sheet leak, setting off the domino chain reaction that led to Moskowitz’s bankruptcy, house arrest and class action lawsuit.

In addition to that case, the attorney is also pursuing one in Florida state court against Brady, Ortiz and O’Leary, which he hopes will lead to a ruling on whether FTX’s interest-bearing accounts constitute unregistered securities.

For Moskowitz, that question is straightforward: “These are unregistered securities, you promoted them, you are responsible.”

But others are not so sure.

“We don’t know if these things will ultimately be considered securities,” said Sheila Warren, chief executive of the Crypto Council for Innovation trade group. “There’s a very strong argument that they’re not at all and never are; there’s an argument that they start out as values… All those arguments exist, and they’re not resolved.”

“Our Regulatory framework for the broader crypto market hasn’t really caught up,” said Yadav, associate dean at Vanderbilt Law. “When we’re talking about particular financial institutions like FTX transacting in crypto tokens, because the tokens themselves don’t have any consensus about what they are legally, then the institutions that trade them don’t either.

A court is unlikely to decree a regulatory model for cryptocurrencies on its own, Yadav added; it is more conceivable that some of the celebrities named in the lawsuit will choose to settle the case to protect their reputations.

Class action cases are hard to win, said Patten of Truth in Advertising, and it won’t be easy to prove that the celebrity endorsers mentioned in it caused harm to investors.

“I wouldn’t bet on the consumer side,” he said.

Still, the reputation damage from the FTX implosion may prove scarier for celebrity affiliates than any dollar amount. Brady and the rest gave Bankman-Fried its cachet when it was on top of the world; now they are stuck with the consequences.

That could precipitate a more lasting change in the way A-listers interact with cryptocurrency.

“I think we’ll see a little more caution in terms of assessing what the reputational issues might be if I go into something that… maybe I don’t understand,” said Warren, the CEO of the Crypto Council. “Maybe we should think about what it means to commit to something that’s very new.”

He crypto the industry can now turn to sources of validation other than famous people, Yadav predicted, for example, legitimization through regulation.

“I think celebrities are now not going to do this anymore,” he said. “Certainly not the big names.”

2023 Los Angeles Times.
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Citation: Have celebrities learned their lesson from the FTX debacle? (2023, Jan 20) Retrieved Jan 20, 2023 from https://techxplore.com/news/2023-01-celebs-lesson-ftx-debacle.html

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