Lessons from Steven Seagal on Digital Asset Endorsements

In this Law360 article, FTI Consulting Managing Director Michael Buffardi outlines some of the SEC risks of celebrity endorsements of securities offerings.

Actor Steven Seagal recently settled charges from the U.S. Securities and Exchange Commission (SEC) that alleged that he improperly promoted an initial coin offering on his social media platforms, lending his likeness in marketing materials and participating in a webinar with potential investors. Further, the SEC alleged that Seagal failed to disclose that he was a paid promoter of the security, a violation of Section 17(b) of the Securities Act.

Seagal’s predicament underscores the common misunderstanding that digital assets are financial instruments and just like other securities may be subject to certain SEC regulations, even though they don’t have ticker symbols like stocks and bonds. The U.S. Supreme Court has established by precedent the so-called “Howey Test” to determine the existence of an investment contract for digital assets, and therefore how they are to be regulated.

The SEC’s enforcement proceedings against Seagal highlights the potential compliance pitfalls that lay in wait for celebrities who might consider endorsing an ICO or other digital assets. Unlike endorsing health supplements or cosmetics, financial instruments are carefully regulated when it comes to disclosures so that investors are protected from making uninformed decisions that could cost them their life savings.

This is an extract from Lessons From Steven Seagal On Digital Asset Endorsements, first published on April 30th 2020. The entire publication is available at https://www.law360.com/articles/1266598/lessons-from-steven-seagal-on-digital-asset-endorsements

"Actor, producer, reserve deputy sheriff, U.S.-Russia special envoy, writer, blues musician, reality television star, martial arts instructor and 7th dan black belt in aikido, Steven Seagal, recently found himself "Under Siege"¹ from the U.S. Securities and Exchange Commission."

Footnotes:

1: https://www.imdb.com/title/tt0105690/?ref_=nm_flmg_act_53