TheCorporateCounsel.net

I’m still a little jet lagged after returning from our conferences in San Francisco, and it’s been a slow news week, so I was delighted to find a recent Florida federal district court decision addressing one of my favorite topics – celebrities who get themselves sideways with the federal securities laws. In Harper v. O’Neal, (SD Fla. 8/24), the plaintiffs alleged that NBA Hall of Famer Shaquille O’Neal was liable for losses suffered by investors in the Astrals Project, a business venture involving an investment in NFTs that could be used in a virtual world in which users could socialize, play, and interact with other users (sounds similar to Method Man’s NFT project).

Anyway, after FTX blew up, the Astrals Project apparently fell apart, and the plaintiffs sued Shaq, who they allege was the “driving force” behind the project and was actively involved in promoting it through various social media channels.  Shaq and the other defendants argued that this wasn’t enough for him to be considered a “seller” for purposes of Section 12(a) of the Securities Act, but the Court disagreed:

Defendants argue that the Amended Complaint fails to allege that Defendant O’Neal “successfully solicited” Astrals and Galaxy tokens to Plaintiffs, 1et alone that he did so to further his or the Astrals Project’s financial interests. Further, Defendants argue that Defendant O’Neal did not directly sell or persuade Plaintiffs to buy Astrals products. However, as cited above, the Wildes panel specifically clarified that solicitation need not be “personal” or “targeted” to trigger liability. See Wildes, 25 F.4th at 1346.

The Complaint alleges that O’Neal, in a video, claimed that the Astrals team would not’ stop until the price of Astrals NFTS reached thirty $SOL and urged investors to “[h]op on the wave before it’s (sic) too late.” Defendant O’Neal acted like the Wildes promotors that urged people to people to buy BitConnect coins in online videos. Wildes, 25 F.4th at 1346.

O’Neal also personally invited fans to an Astrals Discord channel, where he interacted directly with them on a daily basis, reassuring investors that the project would grow. Lastly, Defendant O’Neal’s own financial interests were in mind. The Complaint states that Defendant O’Neal was one of the founders of the Astrals Project. Further, the Astrals Project was his brainchild that he personally developed, and his son was named head of “Investor Relations.” Therefore, Plaintiffs have met the definition of a seller and thus alleged enough to state a Section 12 claim against Defendant.

However, the news wasn’t all bad for Shaq. Despite his status as an alleged founder of the Astrals Project, the Court held that he should not be regarded as a control person under Section 15 of the Securities Act, because the plaintiffs failed to plead how or in what way he used that status to direct the management and policies of the Astrals Project.

– John Jenkins