SEC warns celebrities that endorsing initial coin offerings may be illegal

DJ Khaled promoting a cryptocurrency debit card on Instagram.

A rash of celebrities promoting initial coin offerings on social media has prompted the U.S. Securities and Exchange Commission to issue a warning, noting that such promotions can be illegal without proper disclosures.

“These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement,” the SEC said in a statement this week.

In addition, the commission has also warned investors to be wary of investment opportunities that “sounds too good to be true,” noting that money should be backed by research and not paid endorsements from celebrities.

In particular, some stars have been promoting initial coin offerings on platforms like Twitter and Instagram. Recent endorsements have come from boxer Floyd Mayweather, actor Jamie Fox, music producer DJ Khaled, and rapper Ghostface Killah.

ICOs rely on crowdfunding via cryptocurrency, or decentralized digital assets, selling investors a right of ownership or royalties to a project. When buying into an ICO, investors buy coins of the company, in hopes that they will appreciate in value if and when the business is successful.

The growth and popularity of ICOs has presented challenges for regulators, who seek to mitigate unnecessary risks. Popular ICOs have brought in hundreds of millions of dollars with little to no oversight.

The SEC’s new statement on celebrities comes only a few months after commission warned in July that some ICOs should be regulated in a manner similar to other securities.

Outside of the U.S., others have taken more drastic approaches. In China, for example, ICOs were banned in September, and all trading of local digital funds came to a halt just this week.