On November 29, 2018, the United States Securities and Exchange Commission (SEC) announced that they settled charges against music producer DJ Khaled (real name Khaled Khaled) and boxer Floyd Mayweather, Jr. for alleged violations of Section 17(b) of the Securities Act. The SEC made findings that the two touted an initial coin offering for CTR tokens offered by Centra Tech, Inc. in 2017 on their social media accounts, without disclosing that they had received compensation from the issuer. And, with respect to Mayweather, the SEC found that he made similar postings, for undisclosed compensation, for two other coin offerings as well.
Both Khaled and Mayweather settled the SEC’s actions without admitting or denying any wrongdoing. That type of arrangement is typical in settlements with the SEC and other securities industry regulators.
Khaled was found to have touted the CTR offering via Instagram and Twitter in September 2017, without disclosing that Centra Tech had paid him $50,000 to do so, in violation of Section 17(b) of the Securities Act. As a result of the SEC action, Khaled will disgorge the $50,000, plus interest, and also pay a civil penalty in the amount of $100,000, as well as be subject to a cease and desist order with respect to further 17(b) violations. Khaled also agreed to certain undertakings.
Mayweather was also found to have touted the CTR offering via his Instagram, Twitter and Facebook accounts in September 2017, without disclosing that Centra tech had paid him $100,000 to do so, in violation of Section 17(b). The SEC also found that Mayweather touted two other coin offerings, without disclosing the compensation received, wherein he earned $200,000 from the issuers. As a result of the SEC action, Mayweather will disgorge the $300,000, plus interest, and also pay a civil penalty in the amount of $300,000, as well as be subject to a cease and desist order with respect to further 17(b) violations. Mayweather also agreed to certain undertakings.
These cases are good reminders to securities issuers of the need to comply with the federal securities law in connections with advertisements and solicitations for offerings, and the importance of proper disclosures being made in connection with such advertisements and solicitations. It is also a reminder that the Securities Act applies to newer media, such as digital communications, as well, as the SEC had previously warned.
These cases also are a good reminder for social media users that not every post by so-called social media influencers and celebrities are altruistic. Be mindful that many people may be receiving compensation, whether disclosed or not, in exchange for promoting a product, service or company. Do your own research before deciding to act on such publicized post.
You can read the SEC orders here: