A new class-action lawsuit alleges crypto influencers, including Ben Armstrong, aka BitBoy, promoted FTX without disclosing compensation.
The lawsuit also alleges the defendants replaced YouTube clips promoting former FTX CEO Sam Bankman-Fried with videos apologizing for their endorsements of both the exchange and Bankman-Fried.
Crypto Influencers, Like BitBoy, Hide Behind Language
Adam Moskowitz will represent U.S. and non-U.S. plaintiffs in a class-action suit against Armstrong, Erika Kullbergm, and Kevin Paffrath.
BitBoy took to Twitter to say he is “pretty excited” about the lawsuit. He added:
“When I countersue the plaintiffs and the lawyers involved, we will finally be able to prove unequivocally I never had dealings with FTX. This is going to be the easiest money anyone has ever made since SBT took years.”
The lawsuit adds to a growing list of cases against celebrities who promoted the failed crypto exchange. Some influencers earned money from trades on FTX by customers they referred.
Crypto podcaster Anthony Pompliano promoted the exchange in 2022, while Shark Tank investor Kevin O’Leary reportedly would have received $15 million for promoting the now-defunct exchange.
In the U.S., the Securities and Exchange Commission has well-worn rules that compel securities promoters to disclose conflicts of interest. They must reveal the nature, amount, and source of their remuneration. In an official statement, the SEC stated:
“Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments. These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement. The SEC’s Enforcement Division and Office of Compliance Inspections and Examinations encourage investors to be wary of investment opportunities that sound too good to be true. We encourage investors to research potential investments rather than rely on paid endorsements from artists, sports figures, or other icons.”
The SEC charged TV celebrity Kim Kardashian $1.26 million in 2022 for unlawfully promoting a crypto asset.
In the U.S., influencers often try to evade disclosures by arguing that the assets they promote are not securities, opined a partner at law firm Lowenstein Sandler LLP.
The upcoming EU Markets-in-Crypto-Assets bill will charge promoters who don’t disclose compensation with market manipulation.
FTX Promotions Tanked After Bankruptcy
While it is unclear whether the BitBoy and other influencers’ endorsement contracts are still in force, several FTX promotional contracts have either been altered or terminated since the exchange’s bankruptcy.
Miami-Dade county removed the company’s logo from its Miami Heat basketball arena shortly after the firm filed for bankruptcy in Nov. 2022.
According to its contract with the County, FTX needs to pay three years’ fees, which Coindesk estimated at $16.5 million.
Formula 1 team Mercedes removed FTX’s logo from its cars and driver livery shortly after the bankruptcy filing. Major League Baseball umpires will not wear an FTX patch on their uniforms for the 2023 season.
Alameda CEO Compensation Pales Compared to SBF
In other FTX news, a recent court filing in FTX revealed that the former CEO of FTX affiliate Alameda Research Caroline Ellison, received $6 million in payments and loans primarily from the firm she oversaw. Alameda Research was a market maker for FTX.
According to the filing, her compensation paled compared to those of her male counterparts within FTX’s group of companies.
Former FTX CEO Sam Bankman-Fried received $2.2 billion from Alameda, while the company’s previous director of engineering Nishad Singh received $587 million. Former CTO Gary Wang was reportedly paid $246 million.
In total, $3.2 billion in payments and loans were distributed to founders, including:
- $2.2 billion to Sam Bankman-Fried
- $587 million to Nishad Singh
- $246 million to Zixiao “Gary” Wang
- $87 million to Ryan Salame
- $25 million to John Samuel Trabucco
- $6 million to Caroline Ellison
Ellison, Wang, and Singh had pleaded guilty to charges related to an alleged fraud carried out by Sam Bankman-Fried before FTX filed for bankruptcy. Bankman-Fried has pleaded not guilty to twelve fraud, money laundering, and campaign finance violation charges. He is currently out on a recognizance bond secured by his parent’s home.
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