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
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