The past several months have seen a surge in celebrity endorsements of initial coin offerings (“ICOs”), with the likes of Paris Hilton, Floyd Mayweather, DJ Khaled and Luis Suarez involved in the promotion of specific tokens and ICOs.
In response to this recent increase in endorsement activity, the US Securities and Exchange Commission (“SEC”) released a statement on November 1st warning that these endorsements may violate the anti-touting provisions of federal securities laws. If the tokens being issued in the ICO are securities, any celebrity or other individual making an endorsement must disclose the nature, source and amount of any compensation received, whether directly or indirectly, in exchange for the endorsement.
Notably, the SEC referred back to the Report of Investigation on the DAO (from July 2017) as a reminder that ICOs may be regulated by securities laws, but they again did not express a definitive position regarding whether all tokens are securities. Rather, the focus of this statement was to urge potential investors in the space to make investment decisions based on a careful and independent analysis rather than a celebrity endorsement.
This was yet another not-so-subtle reminder that the SEC takes investor protection very seriously, particularly in the context of ICOs. All participants in an ICO, whether in the role of issuer, advisor, promoter or investor, should be mindful of the application of securities laws to ICO-related activities.
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