Following up on the warnings by the legal experts that celebrity endorsers could face the court of law in the future, two of the most prominent Initial Coin Offering (ICO) social media influencers of last year got hit with lawsuits.
TMZ, the celebrity news publication reported that music producer DJ Khaled and boxing champion Floyd Mayweather has been slapped with class action lawsuits. The action was taken by individuals who lost their investment in Centra Tech ICO. Two celebrities in question prominently endorsed the ICO on social media platforms with Khaled calling it a “game changer” whereas Mayweather nicknamed himself “Floyd Crypto Mayweather.”
The plaintiffs in their suit allege that as a result of Khaled and Mayweather’s efforts, Centra Tech managed to raise around $32 million through ICO which happened last year. Through the suit, investors are now seeking to be compensated for their losses and damages caused by the founders of Centra Tech along with the promoters and celebrity endorsers.
In May this year founders of Centra Tech were indicted with four counts of fraud (wire fraud, conspiracy to commit securities fraud, security fraud and conspiracy to commit wire fraud) by the U.S. Attorney’s Office for the Southern District of New York are now deep down in the legal pit after this class-action lawsuit.
The founders and operators of Centra Tech namely Raymond Trapani, Sohrab Sharma, and Robert Farkas were accused of making misstatement with a view of deceiving investors and making material omissions, “…the defendants conspired to capitalize on investor interest in the burgeoning cryptocurrency market. They allegedly made false claims about their product and about relationships they had with credible financial institutions…” in the indictment.
At the time of arrest by Federal Bureau of Investigation of three men behind Centra Tech, approximately 91,000 ether was seized. Which was valued around $67 million at the time has now plummeted to $18 million.
The lawsuit is not surprising as Securities and Exchange Commission (SEC) has issued a warning last year that celebrity endorsement of ICO could be considered as unlawful if they fail to maintain certain norms.
As per SEC, the endorsement of ICO by the celebrities is a potential violation of the federal securities law if they fail to explicitly reveal the arrangement that the celebrity has with the ICO.