Celebrities fined for promoting ICOs
In early 2018, the Initial Coin Offering (ICO) craze was everywhere and the numbers being raised were eye bulging: Filecoin raised $257 million in a matter of days, Dragon Coin snagged $320 million in a few hours, then came Telegram that gathered $1.7 billion from people clamoring to invest.
The SEC has been slow to react to the craze, largely keeping at a distance and observing what unfolds, but has said that ICOs "may" be securities, and that those offering them will be held to securities law. Now, two celebrities have been fined for promoting ICO schemes without disclosing it.
What happened? Celebrities love ICO money, and many were happy to tout their favorite random coin in exchange for some cash. Both music producer DJ Khaled and pro boxer Floyd Mayweather took $50,000 and $100,000 respectively to share posts about ICO schemes on social media this year and didn't disclose the payment.
The SEC is making an example out of the two celebrities who are just the tip of the iceberg in a world where billions have been poured into virtual coins with very little in exchange. Both celebrities in this case were fined, with Mayweather paying $300,000 in ill-gotten gains and $300,000 in penalties, while Khaled will pay $50,000 in ill-gotten gains and $100,000 in penalties.
Why does it matter? The problem with these 'ICO' fundraises is they're incredibly close to the same thing that happens when a company goes public in an IPO: coins are issued, a stake is provided, and everyone hopes the value will go up in the future.
A key difference, however, is that ICOs are not regulated, and anyone can buy in with a few clicks, stripping away the protections that most investors get on the market. Many ICOs are predicated on companies that have not shipped any product and are promising a lot in the future, and there is little recourse if it goes wrong.
Now, the SEC has shown it has teeth, which is designed to scare off others from spreading unqualified hype in the future. I have personally had to sit through meetings at two companies in the last year that planned to rescue themselves from financial strife through a 'quick ICO' and the trend, very honestly, can't die soon enough.
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