Boxing giant Floyd Mayweather and music producer DJ Khaled have become the first people to be charged by the US Securities and Exchange Commission for the unlawful promotion of initial coin offerings.
Floyd Mayweather and DJ Khaled - real name Khaled Mohamed Khaled - have settled charges brought against them by the SEC for failing to disclose payments they received to tout investments in ICOs in 2017.
Mayweather did not disclose payments received from three ICO issues, including an amount of $100,000 from Centra Tech. Khaled was also paid by Centra Tech, failing to disclose a $50,000 payment.
On Twitter, Khaled referred to Centra Tech as a "game changer" while Mayweather encouraged followers to invest and claimed to have invested himself.
In April 2018, the SEC filed a civil action against Centra Tech claiming the ICO was fraudulent. Criminal charges were also filed.
In an Instagram post Mayweather predicted he would make a significant amount of money off of another ICO and tweeted about a third, stating: "You can call me Floyd Crypto Mayweather from now on." He made $200,000 promoting the two ICOs but did not disclose the payments.
Settling the charges without admitting or denying wrongdoing, Mayweather and Khaled agreed to pay disgorgement, penalties and interest.
Mayweather will pay $300,000 in disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest. Khaled will pay $50,000 in disgorgement, a $100,000 penalty, and $2,725 in interest. They are now banned from promoting any securities, digital or otherwise, for three and two years respectively.
SEC enforcement division co-director Stephanie Avakian said these cases highlight the importance of full disclosure to investors.
"With no disclosure about the payments, Mayweather and Khaled's ICO promotions may have appeared to be unbiased, rather than paid endorsements," she said.
The SEC also warned against making investment decisions on the back of celebrity endorsements. The investigation is ongoing.
"Any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion. A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws," the SEC said.
"Celebrities who endorse an investment often do not have sufficient expertise to ensure that the investment is appropriate and in compliance with federal securities laws."