‘Above the Law’ No Longer—Steven Seagal Settles With SEC Over Failure To Disclose Crypto Endorsement

Advertising Law

Celebrity and movie star Steven Seagal has agreed to pay over $300,000 to resolve U.S. Securities and Exchange Commission (SEC) claims that he failed to tell his Twitter and Facebook followers that he was being paid to promote Bitcoiin2Gen’s (B2G) initial coin offering (ICO) on the social media platforms.

The SEC’s order found that Seagal, “acting” this time as a brand ambassador, failed to disclose he was promised $250,000 in cash and $750,000 worth of B2G tokens in exchange for his endorsement, which included posts on his public social media accounts encouraging the public not to “miss out” on B2G’s ICO and a press release titled “Zen Master Steven Seagal Has Become the Brand Ambassador of Bitcoiin2Gen.” A B2G press release also included a quote from Seagal stating that he endorsed the ICO “wholeheartedly.” These promotions came six months after the SEC’s 2017 DAO Report warning that coins sold in ICOs may be securities. The SEC has also advised that, in accordance with the anti-touting provisions of the federal securities laws, any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope and amount of compensation received in exchange for the promotion.

B2G describes itself as the “world’s first self-sufficient cryptocurrency” and a “superior” and “more advanced” version of the original Bitcoin, according to its website. B2G’s marketing materials claim that the ICO was intended to raise capital for an “ecosystem” that would allow investors to trade B2G tokens, other cryptocurrencies and fiat currencies as well as provide wallet staking on a secure platform, according to the SEC. The cryptocurrency platform announced in a Feb. 12, 2018, press release that Seagal, who currently lives in Russia, would promote its digital currency.

Between Feb. 12 and March 6, 2018, Seagal promoted B2G to his 107,000 Twitter followers and 6.7 million Facebook followers at least nine times, allowed his image to be used on the B2G website and in its marketing materials, and participated in a webinar with potential investors in the ICO, the SEC noted. Neither the press release nor his social media posts mentioned the fact that Seagal had signed an endorsement agreement with B2G and would be paid for promoting the ICO, according to the SEC. Kristina Littman, chief of the SEC Enforcement Division’s Cyber Unit, said, “These investors were entitled to know about payments Seagal received or was promised to endorse this investment so they could decide whether he may be biased. Celebrities are not allowed to use their social media influence to tout securities without appropriately disclosing their compensation.”

Why it matters: According to the SEC, “any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.” The SEC issued its initial guidance about using celebrities to promote initial coin offerings in November 2017. Seagal is not the first celebrity to find himself in hot water with the SEC over the endorsement of an ICO. Boxing champ Floyd Mayweather and musician and media personality DJ Khaled were the first celebrities to catch the ire of the SEC for touting an ICO back in November 2018. They settled for a combined $750,000 with the SEC for failing to disclose that they were being paid to promote a different coin offering. This new case is an important reminder that celebrities who serve as endorsers in highly regulated areas, in addition to complying with the Federal Trade Commission’s Endorsement and Testimonial guidelines, must also provide industry-specific disclosures.

manatt-black

ATTORNEY ADVERTISING

pursuant to New York DR 2-101(f)

© 2020 Manatt, Phelps & Phillips, LLP.

All rights reserved