FTX exchange was the world’s third-largest cryptocurrency exchange in July 2021.[1] It was founded in 2018 by Sam Bankman-Fried, a former trader.[2] The trading products offered by FTX included “derivatives, options, volatility products, and leveraged tokens.”[3]
On November 2022, FTX filed for bankruptcy.[4] The filing alarmed an estimated 9 million customers and investors about their potential financial losses.[5] Following the filing, on December 2022, Sam Bankman-Fried was indicted in the Southern District of New York with charges including wire fraud and conspiracy by misusing customer funds.[6]
With the news that customers were unlikely to recover any money invested in FTX, many have criticized celebrities that were involved in endorsing the cryptocurrency exchange.[7] A class action lawsuit was filed on November 15, 2022, targeting celebrities who endorsed the platform.[8] Some names included in the case are Tom Brady, Stephen Curry, and Larry David.[9] The suit claims that the celebrities endorsing FTX were paid equity stake in the company and should have disclosed that as compensation.[10] The lawsuit also claims that the “celebrity status” of these endorsers “made them culpable for promoting the firm’s failed business model.”[11]
A similar lawsuit took place in January when Kim Kardashian and Floyd Mayweather, Jr. were sued for allegedly using their influence to convince investors to buy the EMax token from cryptocurrency Ethereum Max.[12] However, the judge dismissed the allegations, citing a lack of conclusive evidence that the investors saw the endorsements.[13]
The suit brought against celebrities involved with FTX should have the same outcome. It is inherently known that celebrities who participate in advertisements receive compensation for these advertisements. Additionally, as consumers, we are expected to internalize that a celebrity endorsement parlays into a relationship between the celebrity and the company. Furthermore, the knowledge required to identify fraud is arguably beyond a celebrity’s scope and ability. As such, the customer should not rely independently on a celebrity endorsement to make financial decisions. Regardless of whether the consumer becomes aware of the investment opportunity through a celebrity’s endorsement, the responsibility should be the consumer’s own to do their due diligence and decide if an investment is in their best interest.
[1] Timothy Smith, FTX: An Overview of the Exchange and Its Collapse, Investopedia (Jan. 5, 2023),https://www.investopedia.com/ftx-exchange-5200842.
[2] Id.
[3] Id.
[4] Noele Illien, Tom Wilson & Dietrich Knauth, FTX opposes new bankruptcy investigation as it probes Bankman-Fried connections, Reuters (Jan. 26, 2023, 11:47 PM), https://www.reuters.com/business/finance/us-treasury-financial-watchdogs-companies-among-ftx-creditors-filing-shows-2023-01-26/.
[5] Id.
[6] Matt Egan & Allison Morrow, FTX founder indicted on eight criminal charges including fraud and conspiracy, CNN Bus. (Dec. 13, 2022, 5:36 PM), https://www.cnn.com/2022/12/13/business/sam-bankman-fried-charges/index.html.
[7] Winston Cho, Celebrities Shilling Crypto Face More Than Just Mockery, Hollywood Rep. (Dec. 16, 2022, 6:45 AM), https://www.hollywoodreporter.com/business/digital/ftx-crypto-regulators-feds-scrutiny-1235283202/.
[8] Id.
[9] Id.
[10] Id.
[11] Ken Sweet, Tom Brady, Larry David, other celebrities named in FTX suit, Associated Press (Nov. 16, 2022), https://apnews.com/article/entertainment-technology-sports-celebrity-business-24690dec0c1541a911f4d201e568ebee.
[12] Jennifer Korn, Why Tom Brady, David Ortiz, Jimmy Fallon and other celebrities are getting sued over crypto, CNN Bus. (Dec. 14, 2022, 1:46 PM), https://www.cnn.com/2022/12/14/tech/celebrity-crypto-lawsuits/index.html.
[13] Id.
