SEC Charges 8 Celebs for Misleading Consumers with Crypto Promotion

What happened

This week the SEC brought a slew of charges against Justin Sun, the man behind Tron (TRX) and BitTorrent (BTT) cryptocurrencies. The SEC also charged eight influencers, including well-known names like Lindsay Lohan and Jake Paul, for promoting the cryptos on social media without disclosing that they were paid for it. Sun denies any wrongdoing and six of the celebs agreed to pay settlements of $400,000 each without admitting or denying the charges.

So what

The charges against Sun include the unregistered sale of crypto assets and wash trading, a form of fraud that involves buying and selling the same security to boost trading volumes. The SEC alleges Sun generated over $30 million through "illegal, unregistered offers and sales" of the TRX token. 

"This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure," said SEC Chair Gary Gensler. The SEC says the celebrities -- Lindsay Lohan, Jake Paul, DeAndre Cortez Way (Soulja Boy), Austin Mahone, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty), Shaffer Smith (Ne-Yo), and Aliaune Thiam (Akon) -- were specifically told not to disclose their payment for shilling the tokens.

Now what

This case is just one of several charges the SEC has filed against main players in the crypto industry in recent months. While lawmakers consider how the industry might be regulated, bodies like the SEC are using existing rules to prosecute cryptocurrency cases.

Outside of the specific charges around Tron and BitTorrent, there's a wider issue for crypto investors that could have a profound impact on the whole industry: The SEC considers many cryptos to be securities. If that's the case, much of your crypto portfolio could be deemed unregistered securities. 

There are strict rules about how securities can be traded and how they share information with the public. Given that many top crypto exchanges do not have licenses to trade securities, that distinction could make it hard to buy or sell crypto, and could mean heavy fines and reporting requirements for crypto projects.

The shilling charges against the celebrities highlights the dangers of investment advice on social media. Here are three reasons to tread carefully:

• You don't know if the celebrity was paid to make the endorsement.
• The account could be a fake -- and even if it's a real account, it could have been hacked. 
• Many influencers are not financial advisors and won't know your situation.

If an influencer does promote a particular product or service, look at the post to see if they've been paid to do so. See if that person has a background that qualifies them to give financial advice. Also, look for red flags such as advice that feels too good to be true.

Ultimately, only you know what risk you're comfortable with and what investments might fit into your portfolio. Whether it's cryptocurrency or another investment, don't take a celebrity's word for it. Do your own research and consider whether you're buying an asset that will help you build long-term wealth.