Syed Rahman assesses the issue of celebrity backing of crypto assets.
Social media figure Logan Paul is facing further controversy about his cryptocurrency activities after accusations he may have profited by misleading his followers.
The BBC has reported on evidence that suggests Paul promoted crypto investments without disclosing that he had a financial interest in them. His backing of these investments is said to have caused them to rise in price, with the possibility that he could have profited by selling any such tokens that he had.
Three years ago, Paul’s online videos started to make increasing mention of cryptocurrency. He promoted a series of high-risk meme coins; including some that rapidly rose in value after he hyped them before crashing shortly after. A number of investigative reporters have examined the role of some anonymous crypto wallets in the buying and selling of the crypto assets Paul promoted.
Before these latest reports, Paul - who denies any wrongdoing - was already facing a multi-million-dollar lawsuit over a failed crypto project called CryptoZoo. This online trading card game was supposed to make participants money if they bought a cryptocurrency called a Zoo Token to then buy NFTs that would then somehow hatch into animals that would breed and produce hybrid animals. It attracted about $18.5 million in investment but failed to function as promised and people saw the value of their investment plummet.
Recent years have seen a number of celebrities coming under investigation after promoting crypto to followers without letting it be known that they had a financial interest in the assets they were recommending.
Options
There are many options available to members of the public who wish to report misleading adverts and those that publish them. Advertisements can be reported to the Advertising Standards Authority (ASA) - which has the power to ban them from being published - the Financial Conduct Authority (FCA) - which can initiate both civil and criminal proceedings against those promoting financial services products – or the Competition and Markets Authority (CMA), which can investigate possible consumer protection law infringements.
Certain offences may also constitute fraud by false representation if the celebrity endorsing the cryptocurrency knows or suspects that they are over-inflating its value. However, someone who genuinely believes in the “investment” would not be guilty in law. It is, therefore, difficult to prove whether a celebrity was dishonest about the potential value of an investment. This remains a little-explored area in UK law, although similar investigations have led to large fines in the US, such as Kim Kardashian being fined $ 1.26m for “misleadingly promoting” a cryptocurrency in a pump and dump scheme.
Resist
Those looking to invest in cryptocurrencies should resist being induced into purchasing such assets solely because they are promoted by a well-known person. Extensive due diligence should be taken before making any investments.
Those looking to create a crypto asset which is celebrity backed should be aware that the reputation of it (and their entire brand) will be intimately linked to that person, which will expose it to risks that will be outside of the creator’s control. A good reputation in the consumer’s eye is vital in the cryptocurrency world. Ensuring that a potential celebrity backing does not harm the brand’s reputation is vital. And investors need to be aware that regulators are still catching up with the cryptocurrency world, so they need to invest carefully.
