SEC Warns Celebrities About Promoting Virtual Currencies, Initial Coin Offerings
Posted on: November 4, 2017, 05:00h.
Last updated on: November 4, 2017, 03:15h.
The US Securities and Exchange Commission issued two advisories this week regarding the promotion of initial coin offerings (ICO) and the dangers of investing in such digital currencies.
The first alert came soon after socialite Paris Hilton tweeted a message to her followers promoting the ICO of Lydian Coin, a cryptocurrency that can only be used to purchase marketing services from a Miami startup called Gravity4.
In a public statement titled “Potentially Unlawful Promotion of Initial Coin Offerings by Celebrities,” the SEC advises, “Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments. These endorsements may be unlawful 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.”
Hilton has since deleted the tweet, but not before Gravity4 claims it raised more than $10 million. Other celebrities who have promoted ICOs include Floyd Mayweather, Jamie Foxx, and DJ Khaled.
Digital currencies have become all the rage since bitcoin exploded in value in late 2013. The decentralized asset is a popular deposit method for online gambling websites due to its anonymous peer-to-peer nature.
In addition to warning celebrities that they must disclose their promotional compensation, the SEC cautioned investors about being wooed by their favorite celeb.
“Never make an investment decision based solely on a celebrity endorsement, or other information you receive through social media,” the SEC guided. “It is never a good idea to make an investment decision just because someone famous says a product or service is a good investment.”
What’s an ICO?
An ICO is similar to an IPO (Initial Public Offering) in that it involves an entity seeking to raise capital by selling company shares or assets. But unlike the IPO process, which the SEC oversees, an ICO is largely unregulated and unaudited.
ICOs take place on blockchains, a distributed computer ledger system. Blockchain experts Don and Alex Tapscott summarize a blockchain as “an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Internet entrepreneur Calvin Ayre, who made his fortune by founding the online gambling Bodog brand, knows perhaps as much about digital currency as anyone. And while he’s been extremely bullish on Bitcoin (he’s been accurate in predicting the coin’s ongoing value growth) and remains so on the coin’s fork Bitcoin Cash, Ayre isn’t falling for ICO tricks.
“Most ICOs are scams and also unlawful sale of securities,” Ayre said this week.
Type in an industry and “ICO” and you’ll almost certainly find a current coin offering for some random company. That’s also the case with gambling.
In September, a Macau company tried to raise $500 million through an ICO to build a floating casino called the Dragon Pearl. But the Macau Monetary Authority intervened by warning local financial institutions that they are barred from working with entities that raise capital through digital currency schemes.
While governments can better leverage against physical companies, online the challenge is much more difficult.
This summer, Monster Byte Inc. sold $300,000 worth of coins in its company through an ICO. The capital was used to launch a cryptocurrency internet gambling platform, which is inaccessible in the US.
And Unikrn, an esports betting platform that has billionaire Mark Cuban as an investor, is in the process of selling $100 million worth of tokens.
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