Finance YouTubers sued over promotion of FTX
A new class action lawsuit alleges that several well-known finance YouTubers, including Graham Stephan, Andrei Jikh, Jaspreet Singh and others, should be held responsible for promoting now-disgraced cryptocurrency exchange FTX.
The lawsuit’s plaintiff is Edwin Garrison, a private investor who also filed a lawsuit against former FTX CEO Sam Bankman-Fried himself, plus celebrity promoters like Tom Brady, Stephen Curry, Shaquille O’Neil, Larry David, Kevin O’Leary and others. Bankman-Fried is also facing numerous criminal fraud charges from multiple U.S. government bodies, including the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).
According to Federal Trade Commission (FTC) guidelines for social media influencers, creators must clearly disclose when they are being paid to promote a product. Kim Kardashian, for example, settled with the FTC for $1.26 million last year for not properly disclosing that she was paid $250,000 to promote EthereumMax’s EMAX token.
“Though FTX paid Defendants handsomely to push its brand and encourage their followers to invest, Defendants did not disclose the nature and scope of their sponsorships and/or endorsement deals, payments and compensation, nor conduct adequate (if any) due diligence,” the lawsuit reads.
One of the influencers implicated in the lawsuit, Kevin Paffrath, told TechCrunch that this allegation is false.
“It’s pretty obvious that when we say regularly, ‘Hey, we’re sponsored by…’ on our videos, or ‘Brought to you by…’, you know, this is an ad,” he told TechCrunch. “We even have to check a little box on our videos that say, ‘Hey, this video includes a paid promotion,’ and every one of our FTX ones has a little disclaimer that says this is paid.”
The lawsuit also alleges that the YouTubers took part in a civil conspiracy with FTX and misled customers “with the false impression that any cryptocurrency assets held on the FTX Platform were safe and were not being invested in unregistered securities.”
SEC chair Gary Gensler has asserted that existing securities laws apply to cryptocurrencies, while many in the crypto industry have argued otherwise. This lack of clarity makes it more challenging for cypto companies and influencers alike to know when to abide by more intense standards for the advertisement of securities.
“Ms. Kardashian’s case also serves as a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities,” Gensler said when Kardashian settled with the SEC.
If FTX is considered a security, then these YouTubers could be held liable for not sharing exactly how much FTX paid them.