Not disclosing they were paid for promoting the campaign seems to be the top reason for charging the two celebrities, and the SEC tightens its grip on the incident at the fist occurrence, to cut the way for to happen again, which comes as part of its crackdown on ICOs that has been going on for over a year so far.
November 30, 2018 AtoZ Markets- The U.S Securities and Exchange Commission (SEC) announced on Nov. 29th, that it settled charges against both of professional boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled, for having promoted an ICO campaign without disclosing they were paid for that.
In the details of the news, the SEC said in its that both celebrities unlawfully touted an ICO campaign on their social media accounts, in a way that made them look they were promoting the campaign as a personal initiative, while the fact they were commercially paid for such a step.
“The SEC's orders found that Mayweather failed to disclose promotional payments from three ICO issuers, including $100,000 from Centra Tech Inc., and that Khaled failed to disclose a $50,000 payment from Centra Tech, which he touted on his social media accounts as a "Game changer." Mayweather's promotions included a message to his Twitter followers that Centra's ICO "starts in a few hours. Get yours before they sell out, I got mine…", said the SEC in its announcement, including quotes from what Mayweather had noted on his Twitter account.
According to the reports, Mayweather had also said on his Instagram account: "You can call me Floyd Crypto Mayweather from now on.", the thing that SEC sees as deluding.
Consequently, Mayweather was fined $614,775 ($300,000 in disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest), while Khaled was fined $152,725 ($50,000 in disgorgement, $100,000 penalty, and $2,725 in prejudgment interest), which both of them agreed to pay, as per the reports.
How an ICO start ?
Financial experts explain that cryptocurrency startups create start their ICOs for creating and selling their own tokens, before releasing any products by the time they start the aforementioned campaign in most cases. Buyers, in their turn, buy the tokens in bitcoin or Ethereum.
“You can think of an ICO as buying chips for use in a casino that hasn’t been built yet. ICO funding exploded in popularity last year as an alternative fundraising method to traditional venture capital, but it has since peaked and withered amid the regulatory crackdown.”, Yahoo Finance cited as an example on how an ICO works.
The first time should be the last time
The SEC noted in its statement that this is the first time it takes such an action against an entity for promoting an ICO campaign. However, it is no secret that the American regulator has been leading a strict crackdown on ICOs for over a year.
In her turn, Stephanie Avakian, the SEC co-enforcement director, explained in a statement: “With no disclosure about the payments, Mayweather and Khaled’s ICO promotions may have appeared to be unbiased, rather than paid endorsements.”.
Jay Clayton, the SEC chairman, said on the other hand, that most ICOs are securities offerings and they are therefore expected to be registered with the U.S regulator, or qualify for exemption for selling the tokens for accredited investors or to those residing outside the U.S.A.
“If what you’re doing is starting a venture, and you’re funding that venture by issuing tokens you should start with the assumption that you are conducting a securities offering,”, said Clayton at the Consensus: Invest conference, last week.