The SEC recently issued a statement regarding the use of social media by celebrities and others to encourage the public to purchase stocks and other investments. The SEC asserted that such endorsements may be unlawful "if they do not disclose the nature, source and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement."1 In particular, the SEC noted that celebrities and others have recently promoted investments in initial coin offerings (ICOs). In that regard, the SEC stated that any celebrity or other individual promoting a virtual token or coin must disclose the "nature, scope and amount of compensation received in exchange for the promotion."2 According to the SEC, failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws, and such endorsers may also be liable for potential violations of "the anti-fraud provisions of the federal securities laws, for participating in an unregistered offer and sale of securities, and for acting as unregistered brokers."3 The SEC warns that it will continue to focus on these types of promotions.
The SEC also referenced an investor alert issued by the SEC's Office of Investor Education and Advocacy (OIEA) warning against making investment decisions based solely on celebrity endorsements.4 The OIEA recommended that, before investing, investors (i) research the endorser's background, (ii) learn about the company's business, and (iii) evaluate the fees, costs, and risks associated with the investment in the context of the investor's investment goals, risk tolerance, and similar considerations.