Keeping Up with the Lawsuits: Celebrity Endorsers, Crypto Ads, and the Evolving Liability Landscape | Harris Beach PLLC


The overlap of social media, celebrity endorsements, and cryptocurrency has long been seen as a potential breeding ground for legal and regulatory liability. The proliferation of cryptocurrencies and the lack of definitive crypto regulation in the United States only served to increase the potential quagmire. The December 7, 2022 decision of the Honorable Michael Fitzgerald, USDJ, in Ryan Huegerich, individually and on behalf of all others in similar situations, v. Steve Gentile, et al.In the United States District Court for the Central District of California, dismissing claims against celebrity backers of EthereumMax demonstrates that the future of crypto regulation and marketing is still unclear, and raises many questions about the recently filed former. . FTX demand, Edwin Garrison, et al. v. Sam Bankman-Fried, et al.in which several celebrities were sued for allegedly endorsing and promoting FTX’s interest-bearing crypto accounts.

Proof of the domino effect of these lawsuits is evidenced by the fact that only days after the huegerich decision, on December 9, 2022, another proposed celebrity endorsement class action lawsuit was filed in California federal court. In Adonis Real and Adam Tichter v. Yuga Labs Inc., et al.Several celebrities, including Post Malone, Paris Hilton, Madonna, and Jimmy Fallon, have been accused of misleading investors through their promotion of Bored Ape Yacht Club NFT or the ApeCoin token.

EthereumMax: unexpected limits of liability

In Huegerich vs. gentle, and others.Plaintiffs alleged that Kim Kardashian[1], Floyd Mayweather Jr., and other celebrities illegally promoted (or “cashed” as it’s known in the cryptocurrency world) the EthereumMax cryptocurrency project. In turn, a proposed class of people (a prerequisite for a class action lawsuit) who bought EthereumMax tokens (EMAX tokens) claimed that they were misled by these celebrity backers who intentionally inflated the value of the EMAX token.

Indeed, Plaintiffs alleged a civil lawsuit for conspiracy and RICO violation, characterizing Defendants’ activity as classic “pump and pull”- a scheme in which the alleged perpetrators cheat a project to artificially increase the price of the project, only to sell their shares or tokens in the project at the artificially high price, after which the value of the asset falls significantly. The plaintiffs allege that they purchased the EMAX tokens based on the alleged misrepresentations of celebrities. Plaintiffs allege that they lost large sums of money as a result of Defendants’ actions, including violations of the California Unfair Competition Law and the California Consumer Remedies Act. The plaintiffs also file claims for conspiracy, aiding and abetting, RICO violations, and unjust enrichment and restitution.

Judge Fitzgerald largely rejected the plaintiffs’ arguments, but did not dismiss the entire case.[2] Instead, Judge Fitzgerald explicitly stated that Plaintiffs may amend their complaint to sufficiently establish a claim for relief and file the amended complaint by December 22, 2022. This means they must narrow down their claims in accordance with federal standards for pleadings. and make clear the plaintiffs bought EthereumMax because of the promotions and relied on them to do so. In addition, they must specifically particularize how the endorsers had actual knowledge of the pump and discharge scheme. If Claimants successfully repeat these allegations, and if they have standing to do so, several claims may survive. On the other hand, Judge Fitzgerald formally dismissed the claim under California consumer protection law, arguing that cryptocurrency does not fall under his umbrella.[3]

Bored Ape Yacht Club: Potential Downfall Of The Prolific NFT

In Adonis Real and Adam Tichter v. Yuga Labs Inc., et al.Plaintiffs allege that the individuals who purchased the Bored Ape Yacht Club NFTs and ApeCoin did so based on celebrity endorsements. As a result, the Claimants allege financial losses. Similar to the FTX lawsuit, the Plaintiffs allege that the celebrities failed to disclose their compensation for their endorsements. The Complaint further alleges that the Bored Ape Yacht Club has become synonymous with an exclusive club made up of celebrities, with the only input being the purchase of an NFT.

Impact on FTX

the Adonis lawsuit and knowledge of the dismissal of huegerich It spread like wildfire in the crypto community. With FTX dominating crypto news and the battle lines drawn in that dispute, the importance of huegerich not to be underestimated: the decision has potentially huge implications in relation to the FTX litigation, as well as any future celebrity endorsement cases such as Adonis.

In the FTX lawsuit, celebrity backers were accused of engaging in deceptive practices when they appeared in FTX advertisements and assured potential investors that FTX was a good investment. as in huegerich Y Adonis, the allegations are essentially that the celebrities promoted and, in some cases, profited from a “pump and dump” scheme. The allegations in all three cases are that such schemes were made possible by the large following the celebrities had and the trust their fans had in their promotions.

Keep up and move forward

The FTX demand and the Adonis are still in the early stages of litigation and it seems huegerich is far from over, as counsel for the Plaintiffs has already indicated that he plans to amend and resubmitting the complaint with additional facts before December 22. It should be noted that the lawyers who filed the huegerich lawsuit are the same lawyers who filed the Adonis costume. We can expect to see the lawyers implement the lessons learned from one lawsuit into the other.

the huegerich Y Adonis Litigation, such as the FTX litigation, will be important to monitor for members of the crypto, financial, and legal communities, as well as celebrity promoters. A decision in these celebrity endorsement disputes will likely have a material and significant impact on other such cases, as well as the broader crypto community.