Into every story about cryptocurrency, some amount of absurdity is sure to follow.
Texas is investigating celebrities who had endorsed FTX, the now bankrupt cryptocurrency firm, for potentially violating state securities laws.
The Texas State Securities Board started looking into FTX’s operations last month over whether the exchange’s yield-bearing crypto accounts were providing residents with unregistered securities. Since the company’s collapse on Nov. 11, the board has significantly expanded its probe to examine the impact of this multibillion-dollar bankruptcy.
And promotions of FTX by celebrities such as the Golden State Warriors’ Steph Curry and the Tampa Bay Buccaneers’ Tom Brady are now part of this broadened investigation, as first reported by Bloomberg News and confirmed by The Texas Tribune.
It also comes amid a class-action lawsuit filed in Florida against Curry, Brady and other celebrities — mostly high-profile athletes — which alleges that FTX had used their endorsements as part of a scheme designed to take advantage of “unsophisticated investors.” It also names FTX’s former CEO Sam Bankman-Fried.
“Anyone who renders investment advice in Texas typically needs to be registered and they typically have to truthfully disclose all known material facts,” said Joe Rotunda, the state board’s enforcement director. “In Texas, there is not a different system of justice or regulation for people who are celebrities.”
It’s currently unclear if any prominent Texan would be investigated, but Rotunda said his team is still compiling a list of relevant parties based on recent court filings by FTX’s current CEO John J. Ray III and the class-action lawsuit. In particular, it will be looking at what the promoters disclosed, how they were compensated and how their promotions were scripted and filmed.
“It’s important from a securities regulation standpoint, and from a bankruptcy standpoint, to determine the ways FTX was encouraging clients and Texans to use FTX and invest with FTX,” he said.
He added that his team will also have to consider how the relevant law applies in this situation, since it was established via a 1985 case involving an investment and financial newsletter being distributed via fax.
“That’s a far cry from social media and broadcast advertisements, let alone tokens and blockchains, right?” Rotunda said.
I mean, okay, that’s their job and I appreciate that they are not giving anyone a pass for being a celebrity. It’s just that I personally don’t expect a celebrity endorser to be an actual expert on the thing they’re being paid to endorse. Maybe they should have some level of knowledge, when we’re talking about a financial product, but as a general rule I just figure either they like the thing they’re shilling for or they like the money they’re getting for the shilling. I don’t need for Jose Altuve and Alex Bregman to be salsa connoisseurs in real life. It’s just an ad.
On the other hand, given the best known example we have of a prominent person being accused of violating state securities law (hint: his name rhymes with Pen Kaxton), it could be a decade or more before any of them find themselves answering to the charges in question. If I’m Tom Brady’s lawyer, I’m probably telling him to worry about other things over this one. He’s not in any near-term danger.