Initial Coin Offerings & Celebrity Endorsements

Video transcript:

So, you’ve seen all of these celebrity endorsements of ICOs. And infamously, apparently Floyd Mayweather’s been involved in a number of them. Not why, you know, you would take investment advice from Floyd Mayweather, but in any event, yeah.

SCC came out today and said that there may be an issue, again, you know, sort of a non-qualified response to it with celebrity endorsements. And the reason this is important is this sort of harkens back to the origination of penny stocks and the pink sheet markets where for a long time, and this is to a large part gone away but still exists, you had paid promoters. And for a period of time, those paid promoters, especially when you got, you know, in the dot-com bubble when the internet became, you know, sort of a haven for getting advice about investments and the like. Those paid promoters could pump a stock under the guise of news or under the guise of legitimate press releases or [inaudible 00:01:07] that end.

And, you know, the public could view that as having been, you know, non-biased advice, sort of the origination of fake news, if you wanna buy into that. But the reality is the regulations today have changed such that when there is paid promotion for a security of any type, there has to be a disclosure on what that party is being paid. So, if you look at, you know, sort of your high-profile penny stock websites or you get spammed with penny stock promotions, something like that, you’ll see at the bottom or somewhere, you know, some sort of disclosure, which is not legally required, that says such and such company was paid X for that promotion.

Well, it begs the question with an ICO, and again, it’s a non-committal committal where the ICO is actually deemed to be an offering of securities, whether, you know, these celebrity endorsements or anybody for that matter, whether they have an obligation to disclose the compensation that they’re getting. Obviously, they’re getting something, the question is what. Right? And again, it goes back to the concept of as me, as me as Joe Q Public, if I see this promotion and Floyd Mayweather is out there dancing around saying, “Invest in this ICO,” why am I doing it? Right? Do I really believe that he’s, you know, involved it, and he’s got his own money in it, and believes in it, or he’s getting paid to act like he does? Which is obviously the latter, and that’s the case with a lot of these.

So, the rules that that the SCE’s intimating would relate back to, you know, the early sort of days of online pump and dumps and penny stocks and the like. And I think, again, it would only really apply where you have ICOs which are deemed to be offerings of securities. Again, if the ICO is clearly not within the ambit of securities laws, which I’ve talked about a lot of times before, I don’t think that a paid promoter would have to disclose his compensation. And to the extent that it is a securities offering, the question becomes outside of, you know, the high-profile celebrity. Do a lot of these, you know, different companies that offer ICO promotion work? Which there’s a lot them. A lot of them do a great job and do a legitimate service, because, you know, online promotion is really essential in the sense of an ICO. To what extent do they, you know, if it this in fact an offering of securities, do they have to disclose their compensation? But for now, you know, again, another sort of a more [inaudible 00:03:45] shot over the bow from the SCE, in terms of who has to do what.

But with respect to any sort of paid promotion, whether it’s somebody notable or, you know, the sort of token press release done by a third party, or even, you know, you see a lot of reputable, you know, cryptocurrency-based websites offering placements, do they have to disclose the fact that they’re being paid? And I think the answer is probably yes, in the event that that ICO, again, is deemed to be an offering of securities, which right now, most can be, you know, thought to be not securities offerings. But the ones that clearly are, I think, you’re best served by, you know, adhering to these regulations regarding disclosure of compensation for promoting these ICOs, because it looks very, very akin to the early dot-coms and, you know, how paid promotions started online with the penny stocks and those operators. So, wanted to touch on that. Check me out, it’s Cheers.

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Adam S. Tracy, J.D., M.B.A. Attorney At Law
Adam S. Tracy, J.D., M.B.A.

Bitcoin attorney, Adam S. Tracy , J.D., M.B.A. is an authority in the law of blockchain technology with keen understanding of the regulatory issues facing crypto currency industries and can help you navigate regulatory waters in the field where innovation collide with the law and taxation issues. Located in Chicago, Adam has built his career in one of the world's great financial hubs while helping clients locally and around the world managing the complex process of cryptocurrency compliance.

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