When federal authorities recently charged two 20-something cryptocurrency promoters with lying to investors, it was “a harsh awakening for celebrities who have entered the wild west of initial coin offerings amid the Bitcoin craze,” Fortune magazine said. Boxer Floyd Mayweather and music producer DJ Khaled had been social-media promoters of the cryptocurrency company Centra Tech Inc., at least before the SEC called it “a web of lies.”
Centra’s two founders told many lies in their aggressive marketing campaign to attract all that money, according to the federal criminal complaint filed against them in Manhattan. They claimed that their Centra debit card would allow users to immediately convert hard-to-spend virtual currencies into dollars, and that it was backed by Visa and MasterCard. “In reality,” the SEC said, “Centra had no relationships with Visa or MasterCard.”
The two founders also fabricated a number of fictional Centra executives with supposed gold-plated business backgrounds to convince investors the company was solid, federal authorities said. “Michael Edwards” was Centra’s bespectacled, 60-ish CEO with years of banking experience and a perch at Harvard, according to text and photos in company marketing pieces and Edwards’ LinkedIn page. In truth, the photo was of a Canadian physiology professor, and Edwards was a phantom, court documents said.
The duo “created a false sense of security for investors of Centra Tech ICO by misrepresenting their product and lying about relationships they had with credible financial institutions,” FBI Assistant Director William F. Sweeney Jr. said in a statement.“Investors must exercise the same degree of due diligence when making an investment in an ICO [initial coin offering]as they would with any traditional security.”
Floyd “Crypto” Mayweather
Neither Mayweather nor Khaled was charged by authorities. But for a time they were all-in for Centra. Last August, Mayweather, who for years had used the nickname “Money,” tweeted, “You can call me Floyd Crypto Mayweather from now on.” A few weeks later, he tweetedthat Centra’s ICO was launching in a few hours. “Get yours before they sell out, I got mine,” he wrote.
Last fall, as news reports revealed the role of celebrities like Mayweather, Khaled and others in promoting cryptocurrencies, the SEC issued a public warning about that kind of marketing. The agency said virtual currencies can be considered “securities.” The SEC added that celebrity endorsement of virtual currencies without disclosing the compensation paid for the promotion could violate “anti-touting” provisions of securities law. “Persons making these endorsements may also be liable for potential violations of the anti-fraud provisions of the federal securities laws.”
John Reed Stark, an ex-SEC enforcement attorney who is now a cyber-security consultant, said in an online essay that Khaled’s and Mayweather’s experiences with Centra show that “even notoriously savvy and internationally celebrated multi-millionaires need prudent counsel before making any foray into crypto-financing.”
The former boxer may regret saying, “You can call me Floyd Crypto Mayweather from now on.”
April 17, 2018
Topics: Due Diligence