1985 First Amendment case Key in analyzing Celebrity FTX Liability
With the historic collapse of FTX sending shockwaves through the crypto community, investors and regulators are out for blood. Recently the Texas State Securities Board announced that it is reviewing payments that Tom Brady, Steph Curry and others received to publicize their support for FTX and the disclosures they made and their accessibility to retail investors. Federal investigators are also investigating the FTX collapse but are not yet targeting celebrities.
A class action was recently filed in Florida against celebrities including Kevin O’Leary, Brady, and Curry claiming that they made misrepresentations and omissions that led investors to make significant contributions to FTX.
One important first Amendment case from 1985 may provide us some insight on how these cases will shake out. In Lowe v. SEC, 472 U.S. 181 (1985) the Supreme Court determined that a newsletter published to the general public was not the type of “personalized” investment advice that the SEC seeks to govern. The SEC is concerned with “investment advisors” providing false or misleading information to the general public about an investment. General information given to the public through a newsletter, tv advertisement or similar public media is considered protected by the first amendment.
Holding celebrities liable for their endorsements of securities is a slippery slope. Traditionally, endorsers of products are not required to have sophisticated knowledge of these products prior to promoting them and are not liable unless they make statements that they know are false and misleading. However, where a particular endorser has an ownership interest in a security the line becomes more blurry and several cases - including in the 11th Circuit have found liability against owners of crypto and crypto exchanges potentially liable for their statements.