Last week, the U.S. Securities and Exchange Commission (“SEC” or “Commission”) issued a statement questioning the marketing practices of certain cryptocurrency companies and the celebrities and social media influencers who endorse their virtual currencies.
What should influencers know about the SEC’s recent warning?
SEC Warns Social Media Influencers
On November 1, 2017, the Commission issued a public statement that social media influencer cryptocurrency endorsements may be unlawful if they fail to adequately disclose the nature, source and amount of any compensation paid, directly or indirectly, by the cryptocurrency company in exchange for the endorsements.
In July 2017, the SEC stated that cryptocurrencies may fall within the purview of federal securities laws. In last week’s statement, the Commission warned that cryptocurrency companies engaging in influencer marketing practices without including adequate discloses may violate anti-touting securities regulations. Likewise, the SEC cautioned that non-compliant social media influencers themselves may be in violation of the anti-fraud provisions of the federal securities laws for participating in an unregistered offer and sale of securities and acting as unregistered brokers.
The SEC’s statement echoes the Federal Trade Commission’s (“FTC”) recent crackdown against social media influencers for non-compliant endorsement practices. As we previously reported in September 2017, in the first ever investigation of its kind, two well-known influencers settled FTC charges that they deceptively endorsed the online gambling service CSGO Lotto. Regulators are now actively seeking out non-compliant social media influencers and taking enforcement action against them. Considering this increasing regulatory risk, influencers and marketers alike should always consult with a knowledgeable Internet and social media marketing attorney before engaging in endorsement activity.