The SEC released a report yesterday stating that professional boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled, have settled on the hefty penalty charges that they must pay for failing to disclose payments they received for their promotion of ICO’s. These charges mark the first charges the SEC has filed for ICO violation.
Mayweather and Khaled were both legally required to disclose the paid sponsorship of the ICO’s they promoted on their social media accounts, but both failed to do so. The SEC warned against the sponsorship of ICO’s back in 2017 stating “coins sold in ICOs may be securities and that those who offer and sell securities in the U.S. must comply with federal securities laws.” When the ICO’s Mayweather and Khaled promoted were found to be non compliant with SEC regulations, the SEC went after them.
Mayweather nor Khaled admitted to admitted or denied guilt, but both agreed with the SEC to pay penalty fines. The fines that Mayweather agreed to pay amount to $300,000 in disgorgement, $300,000 in penalties and $14,775 in prejudgment interest. Khaled agreed to pay $50,000 in disgorgement, $100,000 in penalties and $2,725 in prejudgment interest.
Besides the show stoppingly large fines, Mayweather also agreed to cease all promotion of securities for 3 years, and Khaled for 2 years. Mayweather also agreed to aid in the SEC’s investigation of the ICO fraud.
What were the ICO’s?
Mayweather is found to have received endorsement from three different ICO’s while Khaled received just one. While two of Mayweather’s ICO’s remain unidentified, the common factor between Mayweather and Khaled is from Centra Tech Inc.
Centra Tech Inc of Miami founders were both indicted back in May by the federal grand jury in New York City. The founders were charged with having solicited investors to buy unregulated securities.
Investors were promised that Centra would be “the world’s first Multi-Blockchain Debit Card and Smart and Insured Wallet” and that they would receive Centra cards in the future. The cards were supposed to have Visa like functionality so crypto holders could easily spend their money.
The SEC documents indicate that Mayweather failed to disclose payments of $300,000 to promote the ICO by three issuers to his 39.2 million followers on his Twitter, Instagram and Facebook accounts last year. The documents indicate that Khaled failed to disclose that Centra paid him $50,000 to promote one of its ICO’s on his Twitter and Instagram pages last year. Khaled has since deleted the posts.
“These cases highlight the importance of full disclosure to investors,” said Enforcement Division Co-Director Stephanie Avakian. “With no disclosure about the payments, Mayweather and Khaled’s ICO promotions may have appeared to be unbiased, rather than paid endorsements.”
“Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements,” said Enforcement Division Co-Director Steven Peikin. “Social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds.”