Paul Pierce Settles SEC Charges Over Undisclosed EthereumMax Promotion

The U.S. Securities and Exchange Commission on February 17, 2023 imposed a settled cease-and-desist order against former NBA player Paul Pierce over his promotion of EthereumMax’s EMAX tokens on Twitter.

The Commission found that Pierce promoted EMAX without disclosing compensation from the issuer and made materially misleading statements about his holdings and investment intentions. Pierce consented to the order without admitting or denying its findings, except for admitting the SEC’s jurisdiction over him and the proceeding’s subject matter.

The order required $244,116 in disgorgement, $15,449 in prejudgment interest and a $1.15 million civil penalty. Those components total $1,409,565. It also required Pierce to cease violating Sections 17(a)(2) and 17(b) of the Securities Act of 1933.

The development mattered because it applied established securities-promotion rules to paid crypto endorsements distributed directly through a celebrity’s social-media account. It also showed that disclosure failures and misleading promotional claims could be pursued together, even when the promoted instrument traded through decentralized-market infrastructure.

What the SEC found

The SEC’s order covered promotional posts made between May 26 and June 5, 2021. It said EthereumMax or its agents began transferring EMAX tokens to Pierce on May 24 in exchange for social-media promotion and made at least eight transfers through June 18.

Pierce received approximately 1.622 trillion EMAX tokens valued at about $244,116 when received, according to the order. He had more than approximately 4 million Twitter followers during the promotion period.

The Commission found that one post linked to EthereumMax’s website and did not disclose either the source, nature or amount of Pierce’s compensation. Another displayed a screenshot showing holdings worth $2,520,087, although the account was not Pierce’s and his own holdings were substantially lower.

Other posts indicated that Pierce intended to hold or increase his EMAX position. The order found those statements materially misleading because he was selling tokens while making the promotions, including sales on dates when some posts appeared. The findings characterized his conduct as at least negligent; they did not accuse him of intentional fraud.

Why the legal distinction mattered

Section 17(b) prohibits promoting a security for consideration received from an issuer, underwriter or dealer without fully disclosing the compensation and its amount. The rule therefore reaches beyond a generic advertising label. A promoter must disclose who supplied the consideration and how much was received.

Section 17(a)(2), meanwhile, prohibits obtaining money or property through a material misstatement or omission in the offer or sale of securities. By finding violations of both provisions, the SEC distinguished the undisclosed payment from the separate problem of statements that created a misleading picture of Pierce’s holdings and conduct.

The order treated the EMAX tokens involved in Pierce’s promotions as investment contracts offered and sold as securities. That finding was specific to the offering and record described in this administrative proceeding; it did not classify every crypto token or every social-media endorsement as a securities transaction.

Settlement terms and limits

For three years from February 17, 2023, Pierce undertook to forgo compensation from an issuer, underwriter or dealer for communications describing a crypto-asset security. The order scheduled the $1,409,565 total across three installments.

The settlement established enforceable obligations without a contested hearing or judicial verdict. Its findings were based on Pierce’s accepted settlement and expressly were not binding on other people or entities.

Contemporaneous reports from Reuters and the Associated Press independently confirmed the settlement announcement and its no-admission-or-denial posture. No EMAX price or return is used here: fragmented token markets lacked an official consolidated close, and a price move was unnecessary to establish the regulatory significance of the February 17 order.