March 7, 2023

Crypto Enforcement: SEC Calls Foul on NBA Hall of Famer

I think Broc – who is the biggest basketball fan I know – would be annoyed with me if I let the SEC’s recent anti-touting enforcement action against former Celtics star Paul Pierce pass without a mention on this blog. The SEC’s order in this settled proceeding alleges that Pierce’s promotional activities for EMAX tokens ran afoul of Section 17(b) of the Securities Act’s prohibition on touting. Here’s an excerpt from the SEC’s press release:

The SEC’s order finds that Pierce failed to disclose that he was paid more than $244,000 worth of EMAX tokens to promote the tokens on Twitter. The SEC’s order also finds that Pierce tweeted misleading statements related to EMAX, including tweeting a screenshot of an account showing large holdings and profits without disclosing that his own personal holdings were in fact much lower than those in the screenshot. In addition, one of Pierce’s tweets contained a link to the EthereumMax website, which provided instructions for potential investors to purchase EMAX tokens.

Without admitting or denying the SEC’s allegations, Pierce agreed to pay a $1,115,000 penalty and approximately $240,000 in disgorgement. He also agreed to not promote any crypto securities for three years.

This Holland & Knight blog reviews the SEC’s action against Pierce and discusses other celebrities who’ve found themselves targeted by the SEC for alleged touting violations. It also offers up some guidance on avoiding similar situations, and says that crypto’s uncertain status makes it particularly important to watch your step when it comes to promotional activities:

The lack of specific guidance on the issue of “crypto as security” leaves any paid promotional activity of coins or tokens by celebrities, athletes and other influencers vulnerable to an SEC investigation, enforcement action or class-action lawsuit. The risk has only increased as the SEC’s Division of Enforcement has expanded its focus beyond coins and tokens to paid promotional activity in connection with certain NFT (non-fungible token) promotions.

A recent ruling by the U.S. District Court for the Southern District of New York denying a motion to dismiss in connection with a complaint alleging certain NFTs are securities will only add fuel to the flames of this growing fire.14 When in doubt, parties should give careful consideration to proactively disclosing any and all compensation received in connection with any promotional activity involving digital assets.

Great advice, but while it would be wise for our nation’s celebrities to show a little caution here, I still bet it won’t be long until more find themselves in the SEC’s crosshairs for touting. After all, a lot of these folks seem to believe that “Fortune favors the brave.”

John Jenkins