As warned earlier in the year by legal experts that celebrity ICO endorsers could face court action in future, it has now come to pass as a lawsuit has been filed against two of the more prominent ICO social media influencers of last year.
According to celebrity news publication TMZ, a class action lawsuit has been slapped against music producer DJ Khaled and boxing champion Floyd Mayweather. The suit has been filed by individuals who lost their money by investing in the Centra Tech initial coin offering. The two prominently endorsed the Centra Tech ICO on social media platforms with Khaled calling it a ‘game changer’ while the boxing champ even nicknamed himself ‘Floyd Crypto Mayweather’, ostensibly fully convinced of the ICO’s prospects.
In their suit, the plaintiffs allege that partly as a result of the efforts put in by Mayweather and Khaled, Centra Tech managed to raise approximately US$32 million in the ICO which was floated last year. The plaintiffs are now seeking to be compensated for their losses plus damages by the founders of Centra Tech as well as by the celebrity endorsers and promoters.
The class-action lawsuit now raises the stakes for the founders of Centra Tech who were indicted with four counts of fraud (securities fraud, conspiracy to commit securities fraud, wire fraud and conspiracy to commit wire fraud) in May this year by the U.S. Attorney’s Office for the Southern District of New York.
In the indictment citation, the operators and founders of Centra Tech namely Raymond Trapani, Robert Farkas and Sohrab Sharma were accused of making material omissions and misstatements with a view of deceiving investors:
“…the defendants conspired to capitalize on investor interest in the burgeoning cryptocurrency market. They allegedly made false claims about their product and about relationships they had with credible financial institutions…”
When the Federal Bureau of Investigation arrested the three men behind Centra Tech, around 91,000 ether was seized. At the time this was worth approximately US$67 million but with the bear market the value has now plunged to about US$18 million.
The class-action lawsuit against DJ Khaled and Floyd Mayweather does not come as a complete surprise as the U.S. Securities and Exchange Commission (SEC) had already warned last year that celebrity ICO endorsements could be considered unlawful if they failed to meet certain standards.
According to the SEC, celebrity ICO endorsements were potentially in violation of the federal securities laws if they failed to explicitly disclose the arrangement the endorsers have with the ICO companies.
“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,” read an SEC statement as CCN.com reported at the time.
Featured image from Shutterstock.
Last modified: September 27, 2020 6:35 PM