Why Sam Bankman-Fried is turning against A-list FTX boosters—and what could happen to them

Safely locked away for the next quarter of a century—barring the result of an appeal, or an early release for good behavior—Sam Bankman-Fried is spending at least some of that time trying to throw his former celebrity business partners under the bus.

The former FTX CEO has agreed to lend his support to a class-action lawsuit, filed by a group of FTX investors in November 2022, against a handful of celebrities, including Larry David, Tom Brady, Shaquille O'Neal, the Golden State Warriors, and Naomi Osaka, who endorsed the crypto exchange.

If approved by a judge, Bankman-Fried will be freed from paying any penalties in this lawsuit, and the plaintiffs will drop any civil action against him in the future, according to the settlement, filed April 19 in federal court in Miami. In exchange, he will assist the plaintiffs’ lawyers in pursuing the remaining FTX endorsers, providing testimony and private documents.

But amid the litany of dismissed class-action lawsuits, including those against Kim Kardashian and Floyd Mayweather Jr. for promoting EMax tokens, could the celebrities actually be forced to pay up?

“It’s certainly possible,” Rebecca Tushnet, a Harvard professor whose expertise includes copyright, trademark, and false advertising law, told Fortune. “It does make sense that they should have some level of responsibility.”

Alexandra Roberts, a professor of law and media at Northwestern, added: “It's not out of the question that there could be some recovery there.”

Several Youtubers were also sued, while FTX insiders Caroline Ellison, Nishad Singh, and Gary Wang, have already settled, contributing to a fund of $1.4 million, according to court documents. Jacksonville Jaguars quarterback Trevor Lawrence, who was paid half a million dollars to endorse FTX subsidiary Blockfolio, also has settled.

‘Like an idiot, I did it’

The class-action suit makes three distinct accusations: the yield-bearing accounts provided to customers constituted the sale of unregistered securities; false or misleading advertising; and conspiring to commit fraud. In other words, the suit’s success will hinge upon exactly how much the celebrities knew about FTX accounts, and whether they made inaccurate claims.

“A lot turns on what they were told and what they reasonably believed,” Tushnet explained. “If somebody hires you to sell cigarettes to kids, then that's obviously illegal. You shouldn't do it. But in this case, it probably depends on how hard [securities law] was to understand.”

Discerning the defendants’ knowledge about the risks associated with FTX is unclear at this stage, Roberts said, but Bankman-Fried’s testimony and documents could help to establish this. To be found guilty of making false or misleading claims, the defendants needn't have ever mentioned unregistered securities nor know of their existence. Instead, the plaintiffs just need to prove the celebrities knew—or it was unreasonable for them to not know—that they were making false claims.

This varies across the board.

For instance, Stephen Curry had his own nationwide “#notanexpert” ad campaign, where he states: “I’m not an expert, and I don’t need to be. With FTX I have everything I need to buy, sell, and trade crypto safely.” Here, “safely” could be disputed. Likewise, Kevin O’Leary tweeted, “to find crypto investments opportunities that met my own rigorous standards of compliance, I entered into this relationship with @FTX_Official.”

“They're actually making specific statements about it,” and could be held liable, Northwestern's Roberts said.

By contrast, celebrities such as Larry David, Tom Brady, Gisele Bündchen and Naomi Osaka featured in ads endorsing the exchange without making explicit claims. For instance, in David’s Super Bowl commercial, the ad’s joke is that he doesn’t endorse FTX: “Don’t be like Larry.” Bündchen and Brady simply ask: “You in?” This could potentially keep this group off the hook, Roberts explained.

Regretting the commercial, David told the Associated Press in February: "Like an idiot, I did it."

Typical consumers, Roberts added, will understand that some actors simply took a paycheck to say a line, but for the athletes posting a flurry of social media posts, they “called upon their reputation to appeal to their fans to trust them and follow them.”

‘Nonsense’

The celebrities said in court filings that they had never pitched the accounts in question and therefore didn't cause the investors' losses. They argue that under the plaintiffs' claims, "actors in any brokerage ad would be liable for selling any security that an individual user later purchased using the brokerage's services...That's nonsense.”

Another defense that could save the celebrities: How can the plaintiffs prove they saw specific endorsements? In the 2022 EthereumMax suit, a California judge dismissed the case because it was not provable that the investors had actually seen the promotions.

Nonetheless, Kardashian was forced to pay the Securities and Exchange Commission $1.26 million in penalties for promoting the tokens without disclosing she was paid $250,000 for the endorsement. SEC Chair Gary Gensler said in a statement that the law requires celebrities “to disclose to the public when and how much they are paid to promote investing in securities,” a rule that could be used against the FTX boosters.

But Tushnet thinks it may not come down to who said what. “The reason you hire a celebrity is to get their aura to help you make sales. The celebrity understands that's what they're being hired to do, and they have some causal responsibility for the people who invest in it.”

This story was originally featured on Fortune.com