Crypto hucksters’ hidden ties
Social media influencers don’t always reveal their interests in currencies they promote
Logan Paul had a message for his 6 million Twitter followers: He was “all in” on a new cryptocurrency called Dink Doink.
According to the project’s creator, Dink Doink investors would receive shares of a cartoon character, entitling them to a portion of the proceeds if the figure ever appeared in a TV show or movie. Last June, Paul, a 27-year-old boxer and social media influencer, praised Dink Doink on Twitter and in a public Telegram chat, before endorsing it again on his podcast.
But by mid-july, the price of Dink Doink had plummeted to a fraction of a cent, and Paul was facing an online backlash. In his endorsements, he had failed to mention some relevant information: He and the project’s creator were friends, and came up with the idea for the cryptocurrency together. He also received a large allocation of Dink Doink coins when it launched.
“I don’t know what went absurdly wrong,” Paul said in an interview. “That’s the project from hell, and I just wiped my hands of that.”
The collapse in crypto prices in May has renewed scrutiny of the celebrity marketers who sell virtual currencies to the masses. Over the last year, actor Matt Damon and comedian Larry David have starred in high-profile TV commercials for crypto platforms, trumpeting digital assets as an unmissable moneymaking opportunity. Those ads drew criticism from crypto skeptics, but they were tied to mainstream companies with hundreds of millions of dollars in revenue.
A far seedier form of crypto promotion has flourished on social media, rife with undisclosed conflicts of interest and exaggerated claims about skyrocketing profits. Celebrity influencers such as Kim Kardashian and Floyd Mayweather have made millions endorsing specific and often dubious crypto investments, urging fans to buy obscure coins that quickly crashed in value, or shilling non-fungible tokens, the unique digital files known as NFTS.
In some cases, promoters like Paul have admitted that they failed to disclose personal or financial ties to projects advertised on their feeds, a potential violation of federal marketing regulations. And even before the crypto market’s recent downturn, a series of these influencer-backed ventures had crashed, prompting lawsuits that could force some celebrities to compensate investors for their losses.
Some promoters are not well known outside crypto circles but have large followings on social media. Others are major celebrities like Kardashian, who is facing a lawsuit from investors over her marketing of an obscure cryptocurrency called Ethereummax, which is different from Ethereum, one of the most popular crypto platforms.
Crypto promotion occupies a legal gray area. Under federal law, people marketing securities are required to publicly disclose payments for promotions. In 2018, Mayweather paid more than $600,000 to settle SEC charges that he had failed to properly disclose his compensation for marketing initial coin offerings, the crypto equivalent of an initial public offering on Wall Street. But the rule he broke applies only to securities, like stock in a company, and it is unclear which crypto products meet that legal standard.
Crypto promoters could also run afoul of the Federal Trade Commission’s rules, which require marketers of all kinds to disclose when they have a financial stake in the projects they endorse.