The SEC's Crackdown on Celebrity Crypto Promotions May Have a Chilling Effect on Free Speech

Shaquille O’Neal has joined the ranks of celebrities under fire for promoting cryptocurrency on social media.

Several celebrities, including Shaquille O’Neal, Kim Kardashian, and Tom Brady, have been sued for promoting cryptocurrency on social media. While the specific legal claims against each celebrity vary, two common themes emerge: crypto and speech.

For instance, the Securities and Exchange Commission (SEC) has brought numerous enforcement actions to curtail securities-related online communications, and several class action lawsuits have targeted athletes for making social media posts about crypto companies or non-fungible token (NFT) projects that may have no bearing on securities law.

The Federal Trade Commission (FTC) also recently introduced a new rule banning fake reviews, consumer testimonials, and the misuse of social media indicators, such as followers or views generated by a bot. Time will tell how the FTC will pinpoint violators in the ocean of frothy posts lurking on social media platforms, and how many enforcement actions await crypto users.

This is a worrying trend — not just because so many individuals are being caught up in these legal forays — but that the target of these legal actions is speech. With so many high-profile names being targeted for crypto-related speech made on social media, does this phenomenon have a chilling effect on similar speech made by the general public? What should be done to increase healthy and compliant social media communications for participants involved in paid cryptocurrency activities?

One of the most controversial examples of regulators targeting celebrity promotion of cryptocurrency on social media is Kim Kardashian’s tussle with the SEC. In that instance, Kardashian touted EMAX tokens on her Instagram account and placed a #AD disclosure notice — which alerted viewers that she was getting paid for the promotion — in the far bottom right corner of the post. Was this enough for Kardashian to escape liability?

According to the SEC, Kardashian’s disclosure was insufficient. Federal securities laws required promoters of crypto securities to disclose three things: the nature, source, and amount of the compensation received in exchange for the promotion —which Kardashian didn’t do. Without admitting fault, Kardashian settled with the SEC, paying a hefty disgorgement and penalty fee. She also agreed not to promote crypto securities on social media for three years. In 2023, a similar three-year ban on crypto promoting on social media was ordered by the SEC in settlement cases against musician Austin Mahone and NBA player Paul Pierce.

Although it is unclear whether Kardashian, Mahone, and Pierce voluntarily waived their right to engage in commercial speech on social media — including promoting crypto securities in a compliant manner — it is worth considering whether this type of speech-suppressing mandate is an acceptable and constitutional remedy in SEC enforcement cases.

While commercial speech — which promotes some type of commerce like advertising — is protected under the First Amendment, it doesn’t have the same level of protection as noncommercial speech. The reason? Courts have said that commercial speech isn’t immune from government regulation and can be regulated if false or misleading.

The historical reasoning for the SEC’s disclosure requirement for promotions is to help the public distinguish between paid and unbiased opinions published in the news. Similar to the SEC, the FTC has disclosure guidance for social media influencers who endorse products. Its reason is to protect the public from deceptive marketing. Compared to the SEC, however, the FTC’s disclosure standard is lightweight: influencers only need to disclose their relationships with brands. In fact, according to FTC guidance, Kardashian’s #AD may have passed regulatory muster.

One solution to helping the general public — and celebrities — comply with federal law is to create uniform disclosure requirements for promoting crypto activities. For example, reducing the SEC’s three-part promotion requirement to the FTC’s single-part endorsement standard would be a much clearer path to follow and would still accomplish the purpose of the regulation — to increase market transparency and reduce fraud. A simplified standard would be a boon for celebrities like Shaquille O’Neal who find themselves in a purgatory of sorts where courts are in the process of deciding when NFTs are securities.

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Oleh kerana Akta Sekuriti memerlukan penganjur untuk mendedahkan pertimbangan mereka — atau bayaran — antara lain, perubahan yang dicadangkan ini mungkin memerlukan pindaan berkanun, yang merupakan halangan penting untuk melompat. Sebagai alternatif, syarikat media sosial boleh mencipta alat untuk membantu penonton mengenal pasti siaran berbayar dengan mudah. Walaupun kontroversi, pengenalan Elon Musk bagi tanda semak pengesahan dan teg pengenalan pada X yang melabelkan siaran yang dibiayai oleh kerajaan dan kerajaan adalah cara kreatif yang meningkatkan ketelusan kandungan media sosial. Alat yang serupa mungkin dipertimbangkan untuk memberitahu orang ramai tentang siaran berbayar dan membantu pengguna mematuhi peraturan persekutuan.

Menyelesaikan perlembagaan peraturan ucapan komersial SEC di media sosial dan larangan ucapan selama tiga tahun agensi itu akan menjadi ibu kepada semua lubang arnab untuk diterokai. Walau bagaimanapun, bidang ini sudah matang untuk disemak kerana para sarjana sebelum ini telah mempersoalkan sama ada peraturan pendedahan SEC adalah tidak berperlembagaan dan, secara lebih meluas, cara mengenakan kekangan Pindaan Pertama ke atas pihak berkuasa kawal selia SEC.

Tindakan meluas ke atas berkaitan crypto

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