Celebrities under SEC's radar for endorsing cryptocurrency products

Greg S

TS Evangelist

In a statement directed at celebrities and other wealthy individuals, the Securities and Exchange Commission is keeping a close watch on who is endorsing Initial Coin Offerings and other investments made with digital currencies.

An initial coin offering (ICO) is the equivalent of an initial public offering of stock to the public, but using cryptocurrency. Consumers can purchase tokens that are exchangeable for a real digital currency once an ICO goes live. There is extremely high risk associated with ICOs but also lucrative opportunities for early investors.

"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."

Due to the fact that cryptocurrencies still are in a legal gray area over what exactly they are, determining which regulations specifically apply to digital currencies is difficult. In this case, the SEC is using a very clear rule regarding disclosure of compensation for endorsing products. If paid to promote a certain cryptocurrency product, celebrities and others must publicly disclose who is paying them and how they are being compensated.

Disclosure of paid promotion applies to all types of products, not just cryptocurrencies and securities. This is why you may be seeing more messages on YouTube stating that videos include sponsored material, especially following the 'adpocalypse.' In order to prevent misleading consumers, disclosure of paid promotion is a necessary requirement.

Often times promotion by celebrities may appear to be just a publicity stunt for the person appearing in an ad, but in reality the person of interest may have been paid a significant amount of money to appear. Cryptocurrencies should not be treated any differently with regard to consumer protection rules than any other product commercially available.

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