Why Tom Brady, David Ortiz, Jimmy Fallon and More Celebrities Are Being Sued for Crypto

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New York CNN—

With the Sam Bankman-Frieds FTX implosion making headlines, celebrities who peddled cryptocurrency now find themselves under new legal scrutiny.

Tom Brady, Madonna, Gwyneth Paltrow and Baseball Hall of Famer David Ortiz are just a few of the big names being sued by investors as the crypto world crashes at the moment. following the fall of FTX.

The backlash began earlier this month, when a class action lawsuit was filed against celebrities including Jimmy Fallon, Justin Bieber and Serena Williams for the Bored Ape Yacht Club’s NFT promotion.

NFTs are a crypto-related phenomenon that has gone mainstream, essentially turning digital artworks and other collectibles into unique, verifiable assets that are easy to trade on the blockchain. The Bored Ape Yacht Club is a collection of 10,000 NFT digital artworks living on the Ethereum (eth) blockchain.

None of the celebrities named in the lawsuits immediately responded to CNN’s requests for comment.

Tom Brady, Gisele Bundchen and others were sued in November by investor FTX over their endorsement of the now-disgraced crypto platform, then Brady and Ortiz were renamed in early December in a similar lawsuit over their support of FTX.

The lawsuits allege that these public figures failed to properly disclose their own involvement with digital financial institutions.

FTX investors shouldn’t be able to get their money back, the company’s CEO said on Capitol Hill on Tuesday. And people who have poured money into Bored Ape NFTs are finding that their investments aren’t worth what they paid for, as the NFT market has imploded.

Regulators have been warning investors about celebrity endorsements for risky bets for years.

Celebrity cryptocurrency endorsements are fraught with pitfalls, reads the December Bored Apes lawsuit, which cited a 2017 SEC statement warning against such endorsements: Celebrities and others use the networks social media to encourage the public to buy stocks and other investments. Such endorsements may be illegal 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.

Kim Kardashian and Floyd Mayweather, Jr., are among celebrities who faced another crypto lawsuit in January that claimed EthereumMax cryptocurrency executives conspired with celebrity promoters to trick investors into buying the EMax token, driving up its price and allowing them to sell their own tokens. to profit. The lawsuit was dismissed in December by a California federal judge who said it was unclear whether the investors who sued actually saw the promotions.

Plugging in crypto has different implications than, say, endorsing a sports drink or sportswear, Cornell Law School professor Charles Whitehead told CNN after November’s FTX trial.

Selling an asset that is a financial instrument is not the same as selling sneakers, Whitehead said. All those celebrities running around doing these kinds of endorsements should stop and ask a securities attorney.

During its heyday, FTX received endorsements from several athletes and celebrities. Brady and Bundchen, in particular, took an undisclosed stake in the exchange in 2021.

Now it faces bankruptcy and its former CEO is in jail, accused of committing what a prosecutor has called one of the biggest financial frauds in US history.

Crypto betting and celebrity-endorsed NFTs may be appealing to some investors, as famous people argue that people can join their digital fan club or invest in their brands. This gives fans a sense of insider access.

But, as with all investments, buyers should beware. And after the crypto market collapse and a series of lawsuits, celebrities might also think twice about what they approve of in the future.

CNNs Allison Morrow and Amy Woodyatt contributed to this report.

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