Boxing Legend Pays $614,000 To Avoid SEC Advertising Charges

On November 29, 2018, the Securities and Exchange Commission (SEC) announced that pro boxing superstar Floyd Mayweather, Jr. had agreed to pay a $614,000 fine to settle charges related to social media posts touting cryptocurrency investments.

According to the SEC, Mayweather has more than 7.8 million Twitter followers, 21 million Instagram followers and 13.4 million Facebook followers. 

Section 17(b) of the United States’ Securities Act of 1933 requires that anyone being paid to tout or endorse a security investment must disclose the fact that they are being compensated to do so. In other words, an endorser may not deceive the public by hiding the fact that the endorsement was paid for by the issuer of the security.  In July 2017, the SEC issued a report warning that cryptocurrency investments were subject to the Securities Act of 1933.  Mayweather’s social media endorsements began just two days later, with no evidence that Mayweather was actually aware of the report.

In July 2017, just two days after the SEC’s published warning, Mayweather posted on Instagram, “floydmayweather Champion Predictions: I’m gonna make a $hit t$on of money on August 26th… on the ICO.” (An ICO is an initial coin offering). There was no hashtag or other indication informing readers that Mayweather’s post was an endorsement or otherwise paid for by the cryptocurrency issuer.

Mayweather's subsequent Twitter posts included a message that “Centra's (CTR) ICO starts in a few hours. Get yours before they sell out, I got mine…”. In April 2018, the United States government filed criminal and civil charges against Centra’s founders, alleging that the ICO was fraudulent.

In addition to the money Mayweather received from Centra, he also received another $200,000 from two other cryptocurrency companies. On August 23, 2017, Mayweather Tweeted, "You can call me Floyd Crypto Mayweather from now on. #HubiiNetwork #ICO starts tomorrow!"  

The SEC found that Mayweather failed to disclose that he was being paid to promote the cryptocurrency investments.  In total, Mayweather was paid $300,000 from three separate ICOs issuers, including $100,000 from Centra. The SEC press release stated, “With no disclosure about the payments, Mayweather’s […] ICO promotions may have appeared to be unbiased rather than paid endorsements.”

The amount of Mayweather’s payment was a combination of disgorgement, penalties and interest. Without admitting guilt, Mayweather agreed to cough up the $300,000 he received, another $300,000 as a penalty and about $14,775 in interest. Mayweather also agreed he would not promote any securities for the next three years and that he would continue to cooperate with the investigation. Similarly, rapper DJ Khaled agreed to pay about $152,000 to avoid further proceedings for similar violations.

TAKEAWAY: The SEC’s rules for touting security investments are consistent with general advertising principles. Celebrity endorsers' main social media posts must disclose the fact that they are getting paid to make the endorsement. 

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