Tom Brady, Steph Curry endorsements for FTX probed by Texas regulator

Though the stars’ endorsements are not the most immediate priority, they are still a focus in the regulator’s probe into FTX’s collapse. PHOTO: BLOOMBERG

WASHINGTON – Tampa Bay Buccaneers quarterback Tom Brady and the Golden State Warriors’ Steph Curry are among the celebrities that a Texas regulator is investigating for potential securities law violations tied to their promotions of crypto exchange FTX.

The regulator is scrutinising payments received by the celebrities to endorse FTX US, along with what disclosures were made and how accessible these were to retail investors, Mr Joe Rotunda, director of enforcement at the Texas State Securities Board, told Bloomberg News in an interview.

“We are taking a close look at them,” Mr Rotunda said. Although the stars’ endorsements are not the most immediate priority, they are still a focus in the regulator’s larger probe into FTX’s collapse, he said.

For celebrities, FTX might be the loudest lesson yet on the reputational, legal and regulatory risks of hyping crypto. Even before the collapse, the US Securities and Exchange Commission (SEC) was cracking down on plugs without proper disclosures. The Texas probe serves as a reminder that state securities laws might also apply.

Last week, stars including Mr Curry, Mr Brady and model Gisele Bundchen were named as defendants in a class action lawsuit over whether Mr Sam Bankman-Fried’s FTX targeted “unsophisticated investors” using star endorsers.

“If a celebrity says ‘I have looked into this investment and it is terrific, and you ought to put your money into it’ – and if they have not looked into it, that could be a misrepresentation,” said Mr John Olson, a retired securities lawyer and former Georgetown University law professor.

If what is being marketed is deemed to be a security, “they are basically doing something that may very well violate state securities laws”, Mr Olson said.

Texas is communicating with other states as it digs into the FTX issues, Mr Rotunda said. He did not know whether the United States Securities and Exchange Commission (SEC) was probing the celebrity endorsements as part of its broader investigation into the collapsed crypto trading giant. The SEC declined to comment.

The SEC has taken enforcement action against celebrities in other crypto cases. In October, it said reality television star Kim Kardashian would pay US$1.26 million (S$1.74 million) to settle allegations that she broke US securities rules by promoting a crypto token on her Instagram, without disclosing to her followers that she was paid US$250,000 to pitch it.

Ms Kardashian did not admit or deny the SEC’s allegations as part of the settlement, in which she agreed not to tout any digital assets for three years.

As part of its FTX probe, the Texas regulator is taking a close look at exactly what was being promoted – for instance, whether the celebrities were encouraging US investors to engage with a certain trading platform or products directly, Mr Rotunda said. Before FTX’s collapse, the regulator had said it was investigating whether the firm violated its securities laws by offering yield-bearing crypto accounts to US residents.

“There are a couple of different layers to peel away to get down to it,” Mr Rotunda said. BLOOMBERG

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