Stephen Curry, Tom Brady, And Many Other Celebrities Are Caught Up In Crypto Class Action Cases

What do Tom Brady, Stephen Curry, Shaquille O'Neal, David Ortiz, Trevor Lawrence, Naomi Osaka, Jimmy Fallon, Gwyneth Paltrow, and Justin Bieber all have in common?

Each celebrity has recently been named in lawsuits alleging that they misled their followers into buying non-fungible tokens (NFTs) or engaged in deceptive practices by promoting cryptocurrencies.

Whether valid causes of action exist against these individuals is up for debate and will ultimately be decided by courts of law. In the meantime, each celebrity will be required to retain and pay legal counsel to defend against filed Complaints and deal with any negative publicity surrounding the filings.

What is clear at this point is that litigation in the crypto and NFT space is just ramping up and that people with deep pockets will continue to be the targets of aggressive litigants and their legal counsel. Lawsuits have been filed from coast-to-coast, with the most prominent recent cases being a class action lawsuit in Florida against Brady, Curry, and others as well as a proposed class action California lawsuit against Fallon, Paltrow, etc.

Let's take them one by one.

First, the Florida class action lawsuit revolves around the fallout from the collapse of cryptocurrency derivatives exchange FTX, founded by Sam Bankman-Fried. Celebrities like Brady and Curry are being blamed for fraudulently inducing unsophisticated investors to purchase unregistered securities by way of their promotional activities, which were paid for by FTX but not fully disclosed by the promoters. There is a key question underneath the claims, which is whether or not the yield-bearing accounts (YBAs) that were promoted by the celebrities are actually considered securities. FTX has taken the position that they were not while the plaintiffs say otherwise. The conclusion the court comes to on this issue will lead to the creation of a substantial amount of leverage for the plaintiffs or the promoter defendants, at least with regard to the first cause of action alleged, which is a violation of The Florida Securities and Investor Protection Act. That Act states that "it is unlawful and a violation for any person to sell or offer to sell a security within the State of Florida unless the security is exempt under Fla. Stat. § 517.051, is sold in a transaction exempt under Fla. Stat. § 517.061, is a federally covered security, or is registered pursuant to Ch. 517, Fla. Stat." Liability is extended to agents of or for the seller if the agent personally participated or aided in making the sale and it is argued that the celebrities provided material assistance, offered and sold the unregistered YBAs. There is a separate claim for violations of the Florida Deceptive and Unfair Trade Practices Act.

Second, the California class action lawsuit centers on celebrities who promoted Bored Ape Yacht Club NFTs. Here, the plaintiffs also allege the improper promotion of unregistered securities and claim that consumers relied on the statements of celebrities, which led to losing investments. Curry is unique in that he is named in this lawsuit and the Florida lawsuit, but this California case also named celebrities such as Kevin Hart, Snoop Dogg, Serena Williams, and Post Malone as defendants. Whether or not these celebrities properly disclosed their financial stakes also plays a key role in this case.

The existence of these cases alone should serve as a warning of caution to celebrities and their agents as well as their legal counsel. Just because a marketing deal may look good on paper due to its massive guaranteed compensation provision, that does not mean that it comes free of risk. Many of these celebrities who have been named as defendants in the aforesaid cases are shocked and appalled by the litigation, and there is probably no one more surprised than Larry David who, in his promotion of FTX, jokingly said he didn't think it was a good investment and that he is never wrong about that stuff.

These cases also demonstrate the importance of celebrities and others retaining competent legal counsel who will not only thoroughly go through every line of a contract, but also contemplate and call out any potential additional exposure. Here, there should have been diligence done surrounding whether or not the celebrities were promoting unregistered securities. That diligence may have actually been completed, which then may serve as strong defenses for the celebrities who looked into it given their belief that what they were promoting was not, in fact, in the form of a security instead of just relying upon what was told to them by the brand being promoted. They also may be benefitted from the fact that there exists a lack of case law and governmental authority opinions on the subject, with most people in the space relying upon analyses being created with reference to the Howey Test, which dates back to a Supreme Court decision in 1946.

Not all hope is lost for these celebrities, although a lot of money is bound to be burned even if they prevail because their white-shoe law firms will be billing around the clock. A December 2022 ruling from a federal judge in the case concerning Kim Kardashian, Floyd Mayweather, and Paul Pierce promoting the EthereumMax cryptocurrency is a temporary win, although it is expected that the plaintiffs will file an Amended Complaint to avoid the case being dismissed completely. In that case, the federal judge said that there are legitimate concerns about celebrities having the capacity to persuade followers to buy "snake oil with unprecedented ease and reach," but added that there is an expectation for "investors to act reasonably before basing their bets on the zeitgeist of the moment." Basically, consumers must be smarter than simply throwing their cash at whatever a celebrity may be endorsing, and they need to point to specific endorsements that convinced them to take action as opposed to claiming that they were generally persuaded to buy the now worthless cryptocurrency.

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