Tak­ing tips on fi­nance from celebs is not box­ing clever

Floyd May­weather has been fined for pro­mot­ing in­vest­ment ad­vice, but it is his fans who may have suf­fered a knock­out blow

The Daily Telegraph - Business - - Business Comment - James Tit­comb

Most of the 22m peo­ple who fol­low Floyd May­weather on In­sta­gram are prob­a­bly not there for in­vest­ment ad­vice. The for­mer boxer’s page cer­tainly doesn’t seem full of fi­nan­cial wis­dom: he is fond of flash­ing a gaudy $18m (£14m) watch among other di­a­mond-en­crusted jew­ellery of un­cer­tain re­sale value.

But fi­nan­cial ad­vice is pre­cisely what May­weather’s fans re­ceived last Septem­ber when an up­date to his In­sta­gram ac­count pro­moted an ex­cit­ing new in­vest­ment op­por­tu­nity. Ac­com­pa­nied by a pic­ture of him pos­ing with a sil­ver credit card, he wrote: “Spend­ing bit­coins, ethereum and other types of cryp­tocur­rency in Bev­erly Hills with my Ti­ta­nium Cen­tra Card. Join Cen­tra’s ICO on Sept 19.”

The ICO in his post re­ferred to an “ini­tial coin of­fer­ing”, a form of fundrais­ing for dig­i­tal cur­rency com­pa­nies that be­came pop­u­lar last year amid the Bit­coin boom. Huge amounts of money were raised in ICOs – more than $5.6bn in 2017, ac­cord­ing to es­ti­mates – and they appeared to have lit­tle of the reg­u­la­tory bag­gage of tra­di­tional forms of fundrais­ing, which are bound by strict in­vest­ment laws to min­imise fraud. Cen­tra, the com­pany in ques­tion, was rais­ing funds to launch a pay­ment card that al­lowed peo­ple to spend their cryp­tocur­ren­cies as they would use their credit card.

Now, the world of Bit­coin, cryp­tocur­ren­cies and ICOs is fairly opaque, so don’t worry if a lot of the above doesn’t make sense. In­deed, it is un­clear ex­actly how much sense it made to May­weather, ei­ther. While not com­pletely im­pos­si­ble that the boxer had a gen­uine be­lief that Cen­tra was a lu­cra­tive in­vest­ment, it seems un­likely. We now know that he was paid around $100,000 for the post, as well as a sim­i­lar one on his Twit­ter ac­count. Hardly huge money given the mil­lions May­weather was paid for his world cham­pi­onship bouts, but cer­tainly not bad work, and with a much lower risk of in­jury.

A few days af­ter May­weather’s post, Cen­tra raised around $30m and ev­ery­one went away happy. Ev­ery­one, it seems, ex­cept the Amer­i­can mar­kets reg­u­la­tor, the Se­cu­ri­ties and Ex­change Com­mis­sion. Be­cause a cou­ple of months be­fore­hand, the SEC had is­sued a warn­ing about ini­tial coin of­fer­ings, warn­ing that they prob­a­bly qual­ify as fi­nan­cial se­cu­ri­ties, and as a re­sult, are bound by US laws. That means any­one be­ing paid to pro­mote an ICO must dis­close that they are do­ing so, some­thing that May­weather failed to do. Last week, he and DJ Khaled, a record pro­ducer who also hap­pens to have a big In­sta­gram fol­low­ing, were charged by the SEC for vi­o­lat­ing the 1933 Se­cu­ri­ties Act.

The law, while cre­ated well be­fore In­sta­gram or ICOs, broadly states that in­vestors should be given all rel­e­vant in­for­ma­tion be­fore they in­vest in a se­cu­rity. Nei­ther May­weather nor Khaled (who re­ceived $50,000 for pro­mot­ing Cen­tra and de­scribed it as a “game changer”) re­vealed they were be­ing paid.

As a re­sult, the SEC said in­vestors could have been duped into be­liev­ing that the two were sin­cere in their sup­port.

Both set­tled with the SEC, and last week both were forced to pay hun­dreds of thou­sands of dol­lars in fines and re­pay­ments, as well as be­ing banned from pro­mot­ing any se­cu­ri­ties for sev­eral years.

The two got off rather lightly com­pared to the founders of Cen­tra it­self, how­ever. Ear­lier this year its co-founders, Sam Sharma and Robert Farkas, were ar­rested af­ter the SEC charged them with fraud for fail­ing to reg­is­ter its ICO with the reg­u­la­tor, and for ly­ing about their com­pany to in­vestors: claim­ing, for ex­am­ple, that it had agree­ments with Master­Card and Visa when no such thing ex­isted. In­vestors, mean­while, have lost ev­ery­thing.

May­weather and Khaled were far from the only celebri­ties to pro­mote ICOs: a group as di­verse as Lionel Messi, Paris Hil­ton and Steven Sea­gal did so too, of­ten with­out re­veal­ing they were be­ing paid for it. The two fined last week sim­ply had the mis­for­tune to be tied to one that the US gov­ern­ment has ac­cused of fraud.

And more widely, so­cial me­dia is rid­dled with re­al­ity TV stars and other D-list celebri­ties pro­mot­ing health fads and sports­wear with­out re­veal­ing they have been paid for it. Ad­ver­tis­ing watch­dogs have cracked down on the phe­nom­e­non, but far from stamped it out.

Break­ing se­cu­ri­ties laws is, of course, more se­ri­ous than ad­ver­tis­ing en­ergy drinks with­out re­veal­ing you’re be­ing paid for it.

But how much more se­ri­ous? The SEC claimed that May­weather and Khaled’s tweets “ap­pear to be un­bi­ased”, when the truth was very dif­fer­ent.

One of its di­rec­tors, Steven Peikin, pointed out that “in­vestors should be scep­ti­cal of in­vest­ment ad­vice posted to so­cial me­dia plat­forms, and should not make de­ci­sions based on celebrity en­dorse­ments”.

In this re­gard, he is cer­tainly right. May­weather and Khaled de­served to be pun­ished. But at the same time, one has to won­der who ex­actly is out there mak­ing in­vest­ment de­ci­sions based on celebrity en­dorse­ments?

There is no rea­son to as­sume May­weather knew the first thing about cryp­tocur­rency in­vest­ing. And if you’re tak­ing fi­nan­cial tips from some­one who spent their ca­reer get­ting their head bashed in, paid for or not, per­haps your own needs ex­am­in­ing.

Nei­ther May­weather nor DJ Khaled re­vealed they were be­ing paid

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