Tout, Tout, Let It All Out: SEC Continues Crackdown On Celebs, Athletes Touting Digital Assets

• Jurisdiction: United States,Federal
• Law Firm: Holland & Knight
• Subject Matter: Corporate/Commercial Law, Technology, Corporate and Company Law, Securities, Fin Tech
• Author: Scott Mascianica, Jessica B. Magee, Andrew W. Balthazor, Landon W. Mignardi and Keith P. Carroll
• Published date: 08 March 2023

Former NBA player and Hall of Famer Paul Pierce is the latest celebrity cryptocurrency promoter to get caught in the net of the anti-touting provisions of federal securities laws. In a recent settled order issued by the SEC, the agency charged Pierce with violating, among other things, the anti-touting provisions of the Securities Act of 1933. The order provides a great opportunity to revisit those anti-touting provisions, a recap of the SEC's recent policing activities on this front and some key considerations.

Brief History of Anti-Touting Regulation

A longstanding tenet of federal securities laws requires anyone promoting securities to disclose "the nature, scope, and amount of compensation received in exchange for the promotion."¹ As explained in a U.S. House of Representatives report connected to the introduction of the Securities Act, Section 17(b) was meant to thwart newspaper articles and periodicals that were presented as offering unbiased opinions when, in reality, the opinions were bought and paid for.² The provision is critical, as federal securities laws do not prohibit issuers from paying analysts to promote their companies, nor are they under a specific statutory duty to disclose these payments.³

Instead, Section 17(b) of the Securities Act places the duty of disclosing such an arrangement with the parties being paid to perform promotional activities. Section 17(b) prohibits any person from using interstate commerce or publishing or giving publicity to a security for consideration received from an issuer, underwriter or dealer without fully disclosing such consideration.⁴ Unlike with its Section 17(a)(1) counterpart, the SEC need not establish scienter for an anti-touting violation.⁵

Celebrities and Athletes Touting Crypto Assets

In 2017, the cryptocurrency industry was booming with initial coin offerings (ICOs) - unregistered offerings of coins and tokens by developers and creators to raise money for their ventures.⁶ Although several ICOs raised capital for innovative projects, many projects were of dubious quality or even outright frauds. Nevertheless, investors piled in, due in part to influencers and celebrities promoting and touting these ICOs.

As celebrities and other influencers leveraged their extensive social media platforms to endorse various digital assets, concerns about investor harm arising from these ICOs caused the SEC to issue its November 2017 Statement Urging Caution Around Celebrity Backed ICOs. The SEC's warnings in...