With the implosion of Sam Bankman-Fried’s FTX dominating the headlines, celebrities who hawked cryptocurrency are now finding themselves under fresh legal scrutiny.
Tom Brady, Madonna, Gwyneth Paltrow and baseball Hall-of-Famer David Ortiz are just some of the big names facing lawsuits from investors as the crypto world crumbles in the wake of FTX’s fall from grace.
The backlash started earlier this month, when a class-action suit was filed against celebrities, including Jimmy Fallon, Justin Bieber and Serena Williams for promoting Bored Ape Yacht Club NFTs.
NFTs are a crypto-related phenomenon that went mainstream, essentially transforming digital works of art and other collectibles into one-of-a-kind, verifiable assets that are easy to trade on the blockchain. The Bored Ape Yacht Club is a collection of 10,000 pieces of digital NFT art living on the ethereum (eth) blockchain.
None of the celebrities named in the lawsuits immediately responded to requests from CNN for comment.
Tom Brady, Gisele Bundchen and others were sued in November by an FTX investor for their endorsement of the now-disgraced crypto platform, and then Brady and Ortiz were named again in early December in a similar lawsuit for their backing of FTX.
The lawsuits allege that these public figures did not properly disclose their own involvement with digital financial institutions.
Investors in FTX are not expected to be able to recover their money, the company’s CEO testified on Capitol Hill Tuesday. And people who poured money into Bored Ape NFTs are finding their investments aren’t worth what they paid for them, as the NFT market has imploded.
Regulators have been warning investors about celebrity endorsements of risky bets for years.
“Celebrity promotions of cryptocurrencies are fraught with problems,” reads the December lawsuit regarding Bored Apes, which quoted an SEC statement from 2017 cautioning against such endorsements: “Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments. 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.”
Kim Kardashian and Floyd Mayweather, Jr., are among the celebrities who faced another crypto lawsuit in January that claimed cyptocurrency EthereumMax executives schemed with celebrity promoters to entice investors to buy the EMax token, driving up its price and allowing them to sell their own tokens at a profit. The suit was dismissed in December by a federal judge in California who said it was not clear that the investors who sued actually saw the promotions.
Plugging crypto has different implications than, say, endorsing a sports drink or athletic wear, Charles Whitehead, professor at Cornell Law School, told CNN after the November FTX suit.
“Selling an asset that is a financial instrument … is not the same thing as selling sneakers,” Whitehead said. “All these celebrities who are running around and doing these sorts of sponsorships should stop and ask a securities lawyer.”
In its heyday, FTX received endorsements from several athletes and celebrities. Brady and Bundchen, notably, took an undisclosed equity stake in the exchange in 2021.
Now, it faces bankruptcy and its former-CEO is in jail, accused for carrying out what one prosecutor called “one of the biggest financial frauds” in US history.
Celebrity-endorsed crypto bets and NFTs may be enticing for some investors, as famous people make the case that people can join their digital fan club or invest in their brands. It gives fans a sense of insider access.
But, as with all investments, buyers must beware. And after the crypto market bust and a round of lawsuits, celebrities may think twice about what they endorse in the future, too.
– CNN’s Allison Morrow and Amy Woodyatt contributed to this report.