Floyd Mayweather, DJ Khaled charged by SEC for pumping crypto

The U.S. Securities and Exchange Commission is making an example out of boxer Floyd Mayweather and rapper DJ Khaled.

The SEC announced on Thursday it has settled charges against both celebrities for “unlawfully touting” initial coin offerings (ICOs). The main issue: Mayweather and Khaled did not disclose payments they received for promoting the ICOs on their social media accounts. Mayweather was paid by three different ICO issuers, including $100,000 from a company called Centra; Khaled also received $50,000 from Centra.

Hefty fines, and bans from pumping crypto

In total, Mayweather agreed to pay a fine of $614,775 ($300,000 in disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest) and Khaled agreed to pay a fine of $152,725 ($50,000 in disgorgement, $100,000 penalty, and $2,725 in prejudgment interest). Mayweather may not promote any securities (“digital or otherwise”) for three years, and Khaled may not promote any for two years. 

Mayweather also agreed to keep “cooperating with the investigation,” which may mean the enforcement net against anyone connected to Centra will keep expanding.

As part of the settlement, neither celebrity admitted or denied wrongdoing.

Interestingly (and, many readers may find, humorously), the SEC includes specific social media posts in its press release. Khaled, the SEC writes, called the Centra ICO a “game changer.” Mayweather, on Twitter, told his followers that the Centra ICO, “starts in a few hours. Get yours before they sell out, I got mine.” He also tweeted, “You can call me Floyd Crypto Mayweather from now on.”

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Workers prepare a new installation of miners, at the cryptocurrency farming operation, Bitfarms, in Saint-Hyacinthe, Quebec, Canada, February 2, 2018. Picture taken February 2, 2018. REUTERS/Christinne Muschi
PARIS, FRANCE - FEBRUARY 16: In this photo illustration, a visual representation of digital cryptocurrencies, Bitcoin, Ripple, Ethernum, Dash, Monero and Litecoin is displayed on February 16, 2018 in Paris, France. Digital cryptocurrencies have seen unprecedented growth in 2017, despite remaining extremely volatile. (Photo Illustration by Chesnot/Getty Images)
A worker checks the fans on miners, at the cryptocurrency farming operation, Bitfarms, in Farnham, Quebec, Canada, February 2, 2018. Picture taken February 2, 2018. REUTERS/Christinne Muschi
Representation of the Ripple virtual currency is seen in this illustration picture, February 13, 2018. Picture is taken February 13. REUTERS/Dado Ruvic/Illustration
A customer of an Australian bank withdraws money from an Automatic Teller Machine (ATM) next to a Bitcoin ATM at a shopping mall in central Sydney, Australia, October 1, 2015. Australian businesses are turning their backs on bitcoin, as signs grow that the cryptocurrency's mainstream appeal is fading. Concerns about bitcoin's potential crime links mean many businesses have stopped accepting it, a trend accelerated by Australian banks' move last month to close the accounts of 13 of the country's 17 bitcoin exchanges.Picture taken October 1, 2015. REUTERS/David Gray
A worker checks the fan on a miner, at the cryptocurrency farming operation, Bitfarms, in Farnham, Quebec, Canada, February 2, 2018. Picture taken February 2, 2018. REUTERS/Christinne Muschi
A man walks past an electric board showing exchange rates of various cryptocurrencies including Bitcoin (top L) at a cryptocurrencies exchange in Seoul, South Korea December 13, 2017. REUTERS/Kim Hong-Ji
A monitor shows various cryptocurrencies' exchange rates against Japanese Yen including NEM coin (middle in the top) at 'nem bar', where customers can pay with NEM coins, in Tokyo, Japan January 29, 2018. REUTERS/Kim Kyung-Hoon
A miner waits to have its fan replaced, at the cryptocurrency farming operation, Bitfarms, in Farnham, Quebec, Canada, February 2, 2018. Picture taken February 2, 2018. REUTERS/Christinne Muschi
PARIS, FRANCE - FEBRUARY 16: In this photo illustration, the icon of the the Coincheck cryptocurrency exchange application is seen on the screen of an iPhone on February 16, 2018 in Paris, France. Victims of one of the world's largest cryptocurrency hacks are suing Coincheck, the Japanese company whose network was breached in a theft worth more than dollars 650 millions. Coincheck is a bitcoin wallet and exchange service headquartered in Tokyo, Japan, founded by Koichiro Wada and Yusuke Otsuka. It operates exchanges between bitcoin/ether and fiat currencies in Japan, and bitcoin transactions and storage in some countries worldwide. (Photo Illustration by Chesnot/Getty Images)
Representation of the Ripple virtual currency is seen in this illustration picture, February 13, 2018. Picture is taken February 13. REUTERS/Dado Ruvic/Illustration
A view of Romania's first bitcoin ATM is seen in downtown Bucharest June 27, 2014. In a well-lit office with red window frames in downtown Bucharest, Romania's first bitcoin ATM attracts many who until it opened in May had to buy or sell the digital currency face-to-face or through wire transfers. The interest in bitcoin in Romania stands out in a region where national currencies are widely seen as poor substitutes for the euro. Tech-savvy and still deeply distrustful of officialdom 25 years after the end of communism, many Romanians are unfazed by warnings about the cryptocurrency. Picture taken June 27, 2014. To match Feature ROMANIA-BITCOIN/ REUTERS/Bogdan Cristel (ROMANIA - Tags: BUSINESS SOCIETY SCIENCE TECHNOLOGY)
Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 13, 2018. Picture is taken February 13, 2018. REUTERS/Dado Ruvic/Illustration
Eoh Kyung-hoon, leader of a club studying cryptocurrencies, checks a chart after a meeting at a university in Seoul, South Korea, December 20, 2017. Picture taken December 20, 2017. REUTERS/Kim Hong-Ji
Eoh Kyung-hoon, leader of a club studying cryptocurrencies, attends a meeting at a university in Seoul, South Korea, December 20, 2017. Picture taken December 20, 2017. REUTERS/Kim Hong-Ji
A Bitcoin (virtual currency) paper wallet with QR codes and a coin are seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, May 27, 2015. British authorities have come out in support of digital currencies in the name of promoting financial innovation, while proposing that regulations should be drawn up to prevent their use in crime. But it is technophiles who are leading the drive to make London a real-world hub for trade in web-based "cryptocurrencies", of which bitcoin is the original and still most popular. Picture taken May 27, 2015. REUTERS/Benoit Tessier
Publican Grant Fairweather places a beer on the bar next to a Bitcoin sign as he serves a customer in Sydney, Australia, September 29, 2015. Australian businesses are turning their backs on bitcoin, as signs grow that the cryptocurrency's mainstream appeal is fading. Concerns about bitcoin's potential crime links mean many businesses have stopped accepting it, a trend accelerated by Australian banks' move last month to close the accounts of 13 of the country's 17 bitcoin exchanges. Picture taken September 29, 2015. REUTERS/David Gray
A Bitcoin (virtual currency) hardware wallet and a coin are seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, May 27, 2015. British authorities have come out in support of digital currencies in the name of promoting financial innovation, while proposing that regulations should be drawn up to prevent their use in crime. But it is technophiles who are leading the drive to make London a real-world hub for trade in web-based "cryptocurrencies", of which bitcoin is the original and still most popular. Picture taken May 27, 2015. REUTERS/Benoit Tessier
George Rotariu uses Romania's first bitcoin ATM in downtown Bucharest June 27, 2014. In a well-lit office with red window frames in downtown Bucharest, Romania's first bitcoin ATM attracts many who until it opened in May had to buy or sell the digital currency face-to-face or through wire transfers. The interest in bitcoin in Romania stands out in a region where national currencies are widely seen as poor substitutes for the euro. Tech-savvy and still deeply distrustful of officialdom 25 years after the end of communism, many Romanians are unfazed by warnings about the cryptocurrency. Picture taken June 27, 2014. To match Feature ROMANIA-BITCOIN/ REUTERS/Bogdan Cristel (ROMANIA - Tags: BUSINESS SOCIETY SCIENCE TECHNOLOGY)
PARIS, FRANCE - FEBRUARY 16: In this photo illustration, a visual representation of the digital Cryptocurrency Monero is displayed on February 16, 2018 in Paris, France. Monero is an electronic currency that has experienced an incredible surge in 2017. Monero is one of the first 15 cryptocurrencies on the market. The success of Monero is explained by its popularity in 2016 with users of the site AlphaBay, an illegal darknet platform on which were selling drugs and weapons. Cryptocurrencies including Bitcoin, Ethereum, Ripple, Dash, Monero and Litetcoin have seen unprecedented growth in 2017, despite remaining extremely volatile. (Photo Illustration by Chesnot/Getty Images)
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The SEC is fully cracking down on ICOs

In an ICO, a cryptocurrency startup creates and sells its own digital token; buyers pay for the token in bitcoin or ether. In the majority of cases, companies that do ICOs have not yet launched any product. 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.

Centra, the ICO that Mayweather and Khaled had promoted, conducted a $32 million ICO to launch “Centra card,” a credit card to pay for purchases using bitcoin and ethereum. The founders of Centra were indicted for wire fraud and securities fraud back in May.

In the SEC’s press release, the agency declares that these are its “first cases to charge touting violations involving ICOs.” In other words: this is the first time the SEC has publicly brought charges strictly for promoting ICOs.

But this is part of a larger, ongoing crackdown on ICO fraud — it is a crackdown that has been underway behind closed doors for over a year, as a recent Yahoo Finance investigation found, but the crackdown is now coming into the light.

There are two simultaneous forms of enforcement happening in the SEC’s ICO crackdown: it is going after ICOs that were blatantly fraudulent, or fraudulent actions by those connected to ICOs, such as promising big returns, or dishonest marketing; separately, it is going after ICOs that did not register with the SEC as securities offerings.

SEC Chair Jay Clayton has made clear the agency’s view that most ICOs are securities offerings and must be registered as such with the SEC, or qualify for a registration exemption by selling the token only to accredited investors (people with income of $200,000 or a net worth of $1 million) or only outside the U.S.

“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,” Clayton said at the Consensus: Invest conference in New York City this week. 

The actions against Mayweather and Khaled ought to put all the other celebrities (and therehavebeenmany) on blast. If they touted an ICO to their followers and promised, or in any way implied, that the token would go up in value, they could be in big trouble.

Daniel Roberts covers bitcoin and blockchain at Yahoo Finance. Follow him on Twitter at @readDanwrite

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