ADVERTISING concept on a screen

The uncertain liabilities of digital asset advertising

“Don’t be like Larry. Don’t miss out on the next big thing. FTX.”

This message, now painfully ironic, was plastered across millions of screens in the U.S. and worldwide on February 13 during a Super Bowl ad break. Little did FTX know it really would be the ‘next big thing’—in fraud, scandal, and bankruptcy proceedings.

The image that accompanied this tragically prophetic message was comedy legend Larry David, hired to lend his substantial credibility to FTX during possibly the most coveted advertisement slot in U.S. television. A marketing coup that must now seem like a world away to the company’s disgraced founder and former CEO, Sam Bankman-Fried (SBF).

How the mighty have fallen

Fast forward eight months, and the fallout from the October collapse of FTX continues to roll on, with class actions and potential charges racking up against SBF, the latest being an investigation into whether he manipulated the market for two digital assets.

One of the takeaways to emerge so far has been regulators and lawmakers on both sides of the Atlantic questioning whether stricter rules are required to control the industry’s dubious relationship with advertising and the famous faces whose credibility it borrows to sell its products.

FTC rules and loopholes

As of December 5, the U.S. Federal Trade Commission (FTC) is reportedly investigating several unnamed digital asset firms over deceptive or misleading advertising.

Whether FTX is one of those firms remains to be seen, but the timing of such an announcement, coming as it does a month after the company’s bankruptcy filing and in the midst of a string of fraud-related class actions, suggests at least a desire from the agency to be seen to react.

According to the FTC, when consumers see or hear an advertisement on the internet, radio, television, or anywhere else, federal law dictates that it must be “truthful, not misleading, and, when appropriate, backed by scientific evidence.”

This presents a problem for advertising standards agencies like the FTC, as ads are usually only found to be misleading in hindsight after the product has failed or, in the case of FTX, found to be fraudulently insolvent.

It is also a problem for celebrities who might have limited in-depth knowledge of a product and not the understanding, or time, to do comprehensive due diligence on everything they endorse. Advertisers and companies often approach celebrities through agencies and representatives, who pass on the ‘important details’ about how much their bank accounts will increase by, but not the potential risks involved.

However, the wording of the current FTC guidelines leans more on the advertiser’s need to be honest and truthful than the ‘endorsing’ celebrity, with advertisers “subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers,” while the endorsers, “may be liable for statements made in the course of their endorsements.”

Essentially if a celebrity claims to use a product, they must prove they have a record of using it, and if they claim any benefits of the product to the consumer, this must be truthful and backed up where possible.

This provides a convenient loophole for cunning marketing teams.

Taking the example of Larry David’s Super Bowl ad, at no point does he claim any knowledge of FTX, nor that he uses it, nor does he even actively ‘endorse’ it under most definitions of the word—the joke of the advertisement is that in a very Curb Your Enthusiasm (David’s self-deprecating comedy hit) way he turns down the opportunity to sign up to FTX.

In this case, David is lending his credibility to the product by being in its commercial, but at no point does he say or do anything that would make him fall foul of the FTC rules, including non-disclosure.

This latter point is one area other celebrities have come into conflict with another U.S. enforcement agency, the Securities and Exchange Commission (SEC), which governs financial instruments and has similar regulations around disclosures that individuals must make when promoting securities.

SEC’s famous fines

In October, television personality and influencer Kim Kardashian was fined $1.26 million for failing to disclose the fact that she was being paid to endorse EthereumMax on Instagram, and in 2018 the SEC fined boxer Floyd Mayweather Jr and rapper DJ Khaled a combined $600,000 for failing to disclose they were paid to endorse the Centra Tech digital currency project.

In both cases, the celebrities failed to comply with the SEC’s anti-touting rules, which prohibit the promotion of securities (section 17b of the Securities Act of 1933), without making it clear that it was a paid ‘advertisement.’

Despite the fines in these cases, culpability is still not clear cut, and a related class action naming EthereumMax’s celebrity backers, including Kim Kardashian and Floyd Mayweather Jr., was thrown out on December 7 on the grounds that the law “expects investors to act reasonably before basing their bets on the zeitgeist of the moment.”

Judge Michael Fitzgerald placed more onus on investors to act wisely, suggesting that the standard for fraud is higher and needs increased evidence of a will to mislead than was present in the EthereumMax class action.

In his judgment, Fitzgerald did recognize that the lawsuit’s claims raised concerns around “celebrities’ ability to readily persuade millions of undiscerning followers to buy snake oil with unprecedented ease and reach,” but this recognition was a more existential concern and did not serve as proof enough that those named in the suit acted knowingly to deceive.

FTX class actions

When it comes to class actions, there is recent precedent that errs on the side of the defendants, tacitly blaming the victims for making unwise or risky investments.

This could end up being the result for the plaintiffs of the three class actions filed in relation to FTX: Edwin Garrison, whose Miami complaint claims “$11 billion dollars in damages” as a result of a “fraudulent scheme”; Sunil Kavuri, whose Florida case claims that he enrolled in a yield-bearing account (YBA) after being exposed to “misrepresentations and omissions regarding the deceptive FTX platform”; and Elliot Lam’s California class action accuses the defendants of using their “social media reach and personal brands to induce unsophisticated investors and consumers into a relationship with the FTX entities.”

Along with FTX founder SBF, these class actions name a glitzy laundry list of celebrities from across the spectrum of sports, arts, and social media, including TV actor/writer Larry David, football player Tom Brady, entrepreneur/‘shark tank’ star Kevin O’Leary—each of whom is named in two suits—and the Golden State Warriors basketball team, which is named across all three.

Based on the EthereumMax class action ruling, as well as how FTC and SEC rules have been applied in the past, the plaintiffs in the FTX cases will need to prove the scale of the fraud as well as the various named parties’ knowledge of it, to avoid the same ‘buyer beware’ defense.

The former seems an easy task, but the latter will be an uphill struggle to pin to (almost) anyone except SBF.

The liable suspects

FTX wasn’t the only digital asset player to advertise prominently at the super bowl, Coinbase (NASDAQ: COIN), Bitbuy, eToro, and all had ads during the 2022 event—Coinbase’s was just a floating Q.R. code that, when scanned, directed people to various promotions.

A 30-second Super Bowl ad can cost as much as $7 million—so do the maths on FTX’s 2-minute 30 slot—an expensive gamble, but data shows that it might have paid off for the digital asset companies that forked out. According to information collected by SensorTower, Coinbase, eToro, and FTX all saw their U.S. installs grow by a collective 279% on February 13 compared to the week prior. This continued into the following day when week-over-week download growth reached 252%.

As much as this will alarm regulators observing the FTX disaster unfold—and the Commodity Futures Trading Commission (CFTC), which governs much of the digital asset space, has already been obliged to explain the lessons it’s learned from the FTX collapse—it will likely equally alarm those famous faces who appeared in the advertisements.

But, as has been demonstrated, the bar is set high for endorsement liability, so do FTX’s celebrity backers need to be concerned? Or, for that matter, the endorsers of other virtual currency products, such as basketball superstar LeBron James, who appeared in’s 30-second Super Bowl slot, and must now be nervously hoping they don’t suffer a similar fate?

To take the SEC case against Kim Kardashian as an example, it hung on her sharing a link to Instagram followers that said, “This is not financial advice but sharing what my friends just told me about the Ethereum Max token!” without any mention from her or the company that she was being paid to do this.

In contrast, the FTX and other Super Bowl crypto endorsements disclosed that the associated celebrities were participating in a marketing campaign—if their appearance in the ‘advertisements’ didn’t say as much already.

Add this to the fact that even with Kardashian being fined by the SEC for her part in the EthereumMax fraud, she was not found liable in a related class action. So, unless the plaintiffs in the FTX suits can prove that Larry David and co. knew it was a scam, and still entered into the agreements willingly, which seems a far-fetched claim even for the most severe critics of the celebrities in question, it is highly unlikely that they will be found liable in a court of law.

Perhaps then, the solution is a pre-emptive and not a retributive one.

Across the pond, the U.K. Financial Conduct Authority (FCA), a financial services regulatory body, is leading the way in this department by increasing efforts to protect consumers and get ahead of the crypto-advertisers.

Preventative measures

Introduced to the U.K. Parliament on July 20, the Financial Service and Marketing Bill (FSM) proposes rules that require any type of advertisement or invitation to invest to be approved by an authorized entity.

A person or group from most registered companies or legal corporations can apply to be designated an authorized entity for approving such promotions, however, in the U.K., digital asset firms already have to go through a complex process to register with the FCA, and even then, the registration only allows ‘crypto’ firms to serve clients in the U.K., it does not give them the authorization to approve their own advertisements.

This will make it (almost) impossible for digital asset companies to approve their own ads or promotions in the U.K., meaning they will have to go the expensive, time-consuming, and heavily regulated route of hiring an authorized third-party approver.

These third-party approvers are also unlikely to want to bear the burden of liability in the case of an FTX-style crash, so digital assets will have a tough time finding one and then proving to them they’re on the level.

In November, an amendment to the FSM was approved by the House of Commons that would extend the existing rules that prevent the promotion or provision of financial services by unauthorized agents to cover any “cryptoassets” or “cryptographically secured representations of value or contractual rights”—meaning digital currencies are also now squarely within the purview of the bill.

If this wasn’t barrier enough, another blow to prospective crypto-advertisers came on December 6 when the FCA proposed limiting the number of the firms that are able to approve marketing communications for financial sector entities by requiring an additional level of authorization, allowing the FCA to monitor firms more closely – further reducing the pool of potential authorized ad approvers.

The FSM still needs to pass through the House of Lords and receive final approval, but should it pass through unscathed—and considering the current temperature of the digital asset debate, this looks a safe bet—it could come into force in 2023.

Outside of the FSM bill, more evidence of the U.K.’s crackdown on the ‘crypto wild west‘ comes from the Treasury Department, which is finalizing plans for a swathe of new rules to regulate the digital asset sector.

The new regulatory regime will reportedly include limits on foreign companies selling into the U.K., provisions for how to deal with the collapse of companies, and restrictions on the advertising of products—all of which have a distinctly FTX-scented whiff about them.

A parting hypothetical

Had these U.K.-style regulatory hoops been in place for EthereumMax to jump through, Kim Kardashian would probably still be slightly richer, and the FTX class action defendants would also not be in the crosshairs. The tight regulation that looks set to be employed in the U.K. would likely consign the debate around celebrity endorsement liability to the realms of soft drinks, trainers, make-up, and sports cars.

It seems, at the very least, the FTX fiasco and its fallout have caused a rethink from lawmakers who are now rushing to clarify and tighten rules around digital asset advertising, as well as providing a warning to celebrities that handing out endorsements without doing your due diligence is a risk, if only to your reputation.

Using the unforgiving powers of hindsight, some commentators have enjoyed highlighting the irony of FTX’s comedy Super Bowl ad. After being offered the opportunity to get involved with FTX, Larry David proclaims, “Nah, I don’t think so,” which, in light of real-world events, turned out to be a wise choice.

However, few have considered the possibility that, in a shocking twist piling yet another delicious layer atop the irony cake, when it comes to celebrities considering dipping their toes in the lucrative waters of crypto-advertising, maybe the best takeaway from the commercial is FTX’s own parting advice, “Don’t be like Larry.”

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance,, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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