SEC Brings First ICO Touting Cases Against Mayweather and DJ Khaled

The U.S. Securities and Exchange Commission announced settled charges against boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled, on November 29, 2018, for promoting initial coin offerings without disclosing compensation from issuers. The agency described the proceedings as its first cases charging touting violations involving ICOs.

The distinction mattered beyond the two celebrities. Rather than announcing a new cryptocurrency-specific rule, the SEC applied Section 17(b) of the Securities Act of 1933, a longstanding provision requiring anyone paid to publicize a security to disclose both the receipt and amount of that compensation. The cases showed that promotion through Instagram, Facebook or Twitter did not sit outside conventional securities disclosure requirements merely because the promoted instrument used a blockchain.

What the orders found

The SEC’s Mayweather order found that he promoted three ICOs after the agency’s July 25, 2017 DAO report warned that some token offerings could involve securities. Centra Tech paid Mayweather $100,000 for promotions posted in September 2017. The order also found that two other ICO issuers paid him $100,000 each for separate promotions in July and August 2017. None of those payments was disclosed in the relevant posts.

The Khaled order concerned Centra’s CTR token offering, conducted from approximately July through October 2017. Centra proposed issuing the tokens on Ethereum while promoting a card and wallet that it claimed would let users spend several cryptocurrencies. According to the order, Centra paid Khaled $50,000 for a September 27, 2017 social-media post, but the post disclosed neither the payment nor its amount.

These were findings entered through settlement offers, not trial verdicts. Mayweather and Khaled consented to their respective orders without admitting or denying the findings, apart from admitting the SEC’s jurisdiction and the proceedings’ subject matter. The findings also were not binding on other people or companies.

Payments and promotional restrictions

Mayweather was ordered to pay $300,000 in disgorgement, $14,775.67 in prejudgment interest and a $300,000 civil penalty. He also undertook for three years to forgo compensation for promoting securities, digital or otherwise, and agreed to continue cooperating with the SEC’s investigation.

Khaled was ordered to pay $50,000 in disgorgement, $2,725.72 in prejudgment interest and a $100,000 civil penalty. His comparable undertaking lasted two years. In each case, the restriction covered compensated publicity for securities generally, rather than only ICOs or cryptocurrency-related instruments.

Why the cases mattered

The enforcement theory addressed the economics of online influence: an endorsement can appear to be an independent expression of enthusiasm when it is actually paid advertising. For token issuers, promoters and marketing intermediaries, the proceedings demonstrated that compensation disclosure was part of the securities-law analysis surrounding an ICO campaign.

The orders were narrower than a declaration that every token was a security. They found that the specific ICOs promoted by Mayweather and Khaled involved offers and sales of securities. The proceedings also did not resolve the SEC’s separate April 2018 fraud allegations against Centra’s founders. Those allegations remained a distinct matter in the contemporaneous record.

No market-price reaction is asserted here. The surviving sources establish the enforcement action, compensation amounts and settlement terms, but they do not provide a controlled measurement connecting the announcement to movements in bitcoin, ether, CTR or the broader digital-asset market on November 29, 2018.

Contemporaneous limits

As of November 29, 2018, the SEC said its investigation was continuing. The strongest conclusion available on that date was therefore institutional: paid token promotion had become an explicit enforcement target, and celebrity status offered no exemption from the disclosure rules governing compensated securities publicity.