Internet "influencer" settles with SEC over ICO promotion
Publication:
BIScom Subsection:
Friday, 30 November, 2018 - 06:04
According to the USA's Securities and Exchange Commission, Khaled Khaled (male) is "a well-known celebrity music producer known as “DJ Khaled." So, that's the SEC marked out as fans, then.
And just to prove it, the SEC has done a deal following its favourite things "without admitting or denying the allegation" specifically expressed to be "pursuant to [the] Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding." That means, no one who suffered loss can rely on the deal to support their case. Nice one, America.
In September 2017, Khaled promoted an initial coin offering, or ICO through his social media presence. At the time he had about 12 and a half million "followers" on Instagram and almost four million on Twitter. A company in Miami, Florida, launched a fund-raising exercise on the Ethereum platform issuing "Centra" tokens. The tokens are, in fact, investment contracts - Ethereum is, at its heart, a "smart contracts" platform rather than a coin issuer in the style of bitcoin. The company, Centra Tech, Inc. issued what it called "white papers" which, in this context, are a marketing tool not a government consultation paper. These marketing documents were, in effect, what would be a prospectus for an initial public offer or IPO in traditional stock markets.
One cans see Centra's fund-raising as a kind of hyped up crowd-funding campaign although, legally, they are very different. However, the approach to the public is remarkably similar: in its marketing documents, Centra said that it was raising capital to build and operate "the world's first multi-blockchain debit card and smart and insured wallet." The idea was pretty simple: it was to provide a gateway between their crypto-currency holdings of various flavours and a payment card, issued by Centra using the Visa or MasterCard networks.
The ICO was plugging away when the company decided it needed a bit more oomph and that ooomph would cost USD50,000 paid to Khaled for him to post a single positive message and a photo of him with a "titanium (sic) centra (sic) debit card." There was no doubt that this was a promo because the message went on "This is a Game changer here. Get your CTR tokens now."
There was no indication that the post, which appeared on 27 September 2017, was paid for and that Khaled was therefore recommending a security for reward. That's a breach of SEC rules.
It's costing Khaled: he's got to surrender the USD50,000 plus pre-judgment interest of USD2,725.72 and pay a civil money penalty of USD100,000 and he's not allowed to be paid, or to agree to be paid, for promoting any security for two years.
More reading: https://www.sec.gov/litigation...
