New York
CNN
—
With the implosion of Sam Bankman-Fried’s FTX dominating the headlines, celebrities who have promoted cryptocurrency are now under fresh legal scrutiny.
Tom Brady, Madonna, Gwyneth Paltrow, and baseball Hall-of-Famer David Ortiz are just a few of the big names being sued by investors as the crypto world collapses in the wake of FTX’s fall from grace.
The backlash began earlier this month, when a class action lawsuit was filed against celebrities including Jimmy Fallon, Justin Bieber and Serena Williams for promoting Bored Ape Yacht Club NFTs.
NFTs are a crypto-related phenomenon that has gone mainstream, essentially transforming digital artworks and other collectibles into unique, verifiable assets that are easy to trade on the blockchain.The Bored Ape Yacht Club is a collection of 10,000 pieces of digital NFT art that lives on the ethereum (eth) blockchain.
None of the celebrities named in the lawsuits immediately responded to CNN’s requests for comment.
Tom Brady, Gisele Bundchen, and others were sued in November by an FTX investor for their endorsement of the now-disgraced crypto platform, and then Brady and Ortiz were named again in a similar lawsuit in early December for their support of FTX.
The lawsuits allege that these public figures have not properly disclosed their own involvement with digital financial institutions.
Investors in FTX are not expected to be able to get their money back, the company’s CEO testified on Capitol Hill on Tuesday.And people who have put money into Bored Ape NFTs are finding that their investments are not worth what they paid for them as the NFT market has imploded.
Regulators have been warning investors about celebrity endorsements for high-risk bets for years.
“Celebrity promotions of cryptocurrencies are fraught with problems,” reads the December lawsuit related to Bored Apes, citing a 2017 SEC statement warning against such recommendations: “Celebrities and others use social media networks to encourage the public buy stock and other investments These recommendations may be illegal if they do not disclose the nature, source and amount of any consideration paid, directly or indirectly, by the Company in exchange for the endorsement.
Kim Kardashian and Floyd Mayweather, Jr., are among the celebrities who faced another crypto lawsuit in January alleging that EthereumMax’s cryptocurrency executives schemed with celebrity promoters to entice investors to buy it.EMax token, driving up the price and allowing them to sell their own tokens.at a profit.The lawsuit was dismissed in December by a California federal judge who said it was not clear that the investors suing had actually seen the promotions.
Plugging crypto has different implications than, say, endorsing a sports drink or athletic apparel, Cornell Law School professor Charles Whitehead told CNN after November’s FTX lawsuit.
“Selling an asset that is a financial instrument … is not the same as selling sneakers,” Whitehead said.“All these celebrities running around doing this kind of sponsorship should stop and get a securities attorney.”
In its heyday, FTX received support from several athletes and celebrities.
Notably, Brady and Bundchen took an undisclosed equity stake in the exchange in 2021.
Now it’s facing bankruptcy and its former CEO is in jail, accused of carrying out what a prosecutor called “one of the biggest financial frauds” in US history.
Celebrity endorsed crypto bets and NFTs may be attractive to some investors as famous people claim that people can join their digital fan club or invest in their brands.
It gives fans a sense of insider access.
But, as with all investments, buyers should beware.And after the failure of the crypto market and a series of lawsuits, celebrities may also think twice about what they endorse in the future.
– CNN’s Allison Morrow and Amy Woodyatt contributed to this report..
