SEC’s Next Move: Social Media Influencers Who Promoted Crypto ICOs

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The U.S. Securities and Exchange Commission (SEC) is actively
cracking down on crypto initial coin offering (ICO) projects and a
top official said earlier this year that dozens of cases are pending.
The next wave of enforcement by the SEC, stimulated by its recent
settlement with professional boxer Floyd Mayweather and music
producer DJ Khaled, is expected to be on social media influencers
who have promoted ICOs to the general public.

When is ICO Promotion a Fraud

Writers, YouTube celebrities, cryptocurrency review platforms,
publications, and many more individuals and organizations could
be targeted by the SEC if there’s sufficient evidence to prove that
an individual or an organization received compensation from ICO
organizers to promote a token sale, without disclosing the amount
received from an ICO project to the target audience.
“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
said last year, emphasizing that the failure to disclose
compensation is considered a fraudulent activity.

On November 28, the SEC followed up on its previous statement
and said that investors must be aware of celebrities promoting
tokens on the blockchain . The commission said :

“Investors should be skeptical of investment advice
posted to social media platforms, and should not make
decisions based on celebrity endorsements. Social media
influencers are often paid promoters, not investment
professionals, and the securities they’re touting,
regardless of whether they are issued using traditional
certificates or on the blockchain, could be frauds.”

If a celebrity openly promotes an ICO after receiving a payment to
do so, and the ICO is considered a security by the SEC, the
individual could be seen as a violator of U.S. securities
regulations by the SEC.

Most ICOs are Securities

Over the past seven months, Coinbase, the largest fiat-to-crypto
exchange in the U.S. market, has been working with regulators to
list additional digital assets on its platform.
In May, Coinbase announced its interest in listing Stellar (XLM) ,
Cardano (ADA) , 0x (ZRX) , Zcash (ZEC) , and Basic Attention Token
(BAT) . Fast forward nearly seven months, the exchange has only
been able to add three out of the five cryptocurrencies it set out to
integrate.

Coinbase has been cautious in ensuring that a digital asset is not
recognized as a security by the SEC because in a hypothetical
case that an asset listed by an exchange is declared a security by
the U.S. government, the exchange could be prosecuted for illicitly
distributing unregistered securities.
On Tuesday, Hacked.com reported that Jay Clayton, the chairman
of the SEC, said the commission views most ICOs in the global
market as securities:

“We don’t believe Bitcoin is a security. Many of the ICOs
that you see and you talk about, they are securities. And
if you’re going to offer or sell securities, you have to do
so in compliance with our laws. We’ve been clear about
that, the recent actions further emphasized that our
securities laws to apply to the ICO space, and if people
are going to raise money using initial coin offerings they
either have to do so in private placement or register with
the SEC.”

Promoting an ICO recognized as a security without disclosing
compensation to the target audience could result in a penalty that
is twice larger than the compensation itself, as seen in the case of
Floyd Mayweather who paid over $600,000 for receiving $300,000
to promote three ICOs.

Source : https://www.ccn.com