The FTX Collapse: Is it Right for Celebrities to Be Sued?

By Chika

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Last Updated: November 25, 2022

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The debris from the FTX collapse is far from settling.

Predictably, there is bound to be a rush as investors come to grips they may not be able to recover their money trapped in the exchange. As expected, there has been a flood of angry reactions directed to celebrities who 'endorsed' the defunct exchange. 

Supermodel Gisele Bundchen, NFL star Tom Brady, and comedian Larry David are among a list of well-known celebrities that are facing lawsuits on account of misleading investors to open accounts on the cryptocurrency exchange.

A proposed class action filed in federal court in Florida named those three, along with other athletes and entertainers, as defendants in the case. All promoted FTX, the fifth largest crypto trading platform exchange currently under investigation for possible securities violations before it declared bankruptcy on November 11.

Other celebrities named in the suit include:

  • NBA star Stephen Curry
  • NFL quarterback William Trevor Lawrence
  • Baseball player Shohei Ohtani
  • Tennis player Naomi Osaka
  • Broadcaster and former basketball player Shaquille O'Neal
  • Kevin O'Leary, a host of "Shark Tank"

The suit contends FTX deployed celebrities to tout the exchange and route them into a Ponzi scheme. The suit seeks unspecified monetary damages, alleging the FTX collapse resulted in consumers collectively losing more than $11 billion.

However, can celebrities be held accountable?

 

What does the law say?

The FTC indeed forbids false advertising and endorsements.

According to the website of the Federal Trade Commission, Section 255.1(d)  recognizes that advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material links between themselves and their endorsers. 

Endorsers also may be held accountable for words made during their endorsements -  the statement reads.

The FTX celebrity endorsements are different from the earlier ones in that regard because almost always FTX declared, via news releases, that the affiliated celebrities were taking part in marketing initiatives.

 

 

Previous Cases of Celebrities Penalized for Misleading Crypto Ads

In the past, celebrities who promoted cryptocurrencies have been successfully fined for breaking disclosure laws.

Kim Kardashian, a television personality and social media influencer, was fined $1.26 million in an unrelated cryptocurrency case for failing to disclose that she had received payment to promote the EthereumMax cryptocurrency on Instagram.

Boxer Floyd Mayweather and rapper DJ Khaled were each fined $600,000 by the Securities and Exchange Commission (SEC) in 2018 for failing to disclose that they had received payment to support the Centra Tech cryptocurrency project.

In both of these instances, the celebrities violated the Stocks and Exchange Commission's anti-touting regulations, which forbid promoting securities without disclosing that it was a paid advertisement (section 17b of the Securities Act of 1933).

 

 

Celebrities are not Financial Role Models

We all know that celebrities are role models, and lots of people look up to them. But when it comes to your money, the only qualified role models should be investors who have a track record of profitable investments, not entertainers and sports people. 

While it's easy to shift the blame to the celebrities who were obviously paid money to market the services of FTX, the personal responsibility for managing your financial affairs is yours (that's unless you hired a financial expert to guide you or oversee your investments).

This is why we have advocated using due diligence before investing your money into any scheme.

Yes, plaintiffs have a chance of succeeding in their pursuit of Tom Brady and other celebrities if they can show that FTX was a fraud or that they knew Bankman-Fried was mismanaging investors' funds.

Albeit, if celebrities knew that FTX was misusing investors' money, they wouldn't take a chance on their reputation for fear of being blackballed by the public.

 

How will it all play out?

In the case of FTX, investors can be blamed for using the exchange which was merely a platform for them to trade crypto. However, given the domino collapse of crypto platforms, it is obvious that the best way to secure your crypto assets is by storing them in hard wallets. 

Even if the bankruptcy judge deems it appropriate to distribute FTX's assets as the crypto exchange seeks to restructure as part of its Chapter 11 filing, retail investors would be last in line to receive any form of compensation.

FTX's creditors will be first in line to get whatever assets would be distributed. Investors in the Bahamas-based company, which had raised some $2 billion in venture capital, come next.

That means FTX account holders, who used the platform to trade Bitcoin, Ethereum, and other digital currencies, may have to wait years to get their money back – if they ever do.

 

Final Word

Celebrities are merely marketers. When it comes to your finances, any advice from them should be taken with a grain of salt. Celebrities themselves are not known to be the best money managers, given some of their frivolous lifestyles. 

It is regrettable that a lot of people may never get their money back. But it also serves as a strong reminder that when the house collapses, the last in line are the ordinary people who put their hard-earned money into these financial platforms. 

As such, when committing money, seek counsel from as many reputable sources as possible.

Photo by EKATERINA BOLOVTSOVA

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