Brady, Larry David Deny FTX Liability by Claiming Ad ‘Puffery’
Tom Brady, Steph Curry, Shohei Ohtani and Naomi Asaka are among celebrities being sued for encouraging fans to buy into collapsed crypto exchange FTX and to unwisely trust its disgraced founder, Sam Bankman-Fried, with their money.
But in a recently filed motion to dismiss, attorneys representing the celebrities insist the lawsuit is “nonsense.” Brady’s “FTX You In?” and Curry’s “I’m not an expert” commercials, the attorneys insist, break no law.
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The celebrities, who also include David Ortiz, Brady’s ex-wife Gisele Bündchen, Trevor Lawrence, Udonis Haslem and Larry David, filed their petition in Garrison v. Bankman-Fried in a Miami federal court last Friday. They are accused of violating the Florida Securities Act, engaging in unfair and deceptive practices and conspiring with Bankman-Fried to dupe customers into buying unregistered securities in the form of yield-bearing accounts (YBAs).
Courts have generally refrained from finding endorsers liable for promoting companies that engage in wrongdoing. In an influential case in 2004, retired MLB player Steve Garvey defeated the Federal Trade Commission, which claimed he bore responsibility for pitching a weight loss supplement that made exaggerated claims. The U.S. Court of Appeals for the Ninth Circuit sided with Garvey, reasoning he lacked knowledge and wasn’t on notice about the exaggerations.
But some of the celebrities sued over FTX were more than mere endorsers. They also invested and, arguably, had or should have had more insight into FTX’s misdeeds before telling their fans to invest as well. Whether that distinction takes on legal significance remains to be seen.
The motion to dismiss offers several key defenses.
One is a lack of causation.
As the celebrities tell it, the investors’ fail to explain how their lost deposits were connected to the celebrities’ advertising, postings and sponsorships. While the investors claim they were tricked into investing into YBAs, none of the celebrities made any statements about YBAs, and several of them, including Ohtani and Lawrence, made no statements at all.
Under the investors’ theory of liability, the motion to dismiss warns, “actors in any brokerage ad would be liable for selling any security that an individual user later purchased using the brokerage’s services.”
The celebrities also argue their messages to fans were innocuous. As the celebrities see it, the investors “fail to explain how a [celebrity] appearing next to FTX’s name, or saying things like ‘FTX, you in?’, misleads or deceives.” At most, the celebrities maintain, their statements were tantamount to “puffery,” meaning generic—and lawful—statements that one product or service is better than another.
Further, the celebrities argue, they didn’t know about FTX’s wrongdoing—and neither did many others.
“Plaintiffs themselves, sophisticated investors, financial institutions, and even members of Congress all were unable to discern FTX’s fraud from the then-available information,” the motion to dismiss asserts. “It is implausible that simply ‘doing business’ with FTX was sufficient to put [celebrities] on notice of fraud (indeed, FTX premised an ad on Curry’s being ‘not an expert’ on cryptocurrency).”
The celebrities also say they aren’t in a logical position to defend against the numerous ways FTX and Bankman-Fried allegedly engaged in fraud, money laundering and other criminal acts. “Celebrities,” the motion to dismiss maintains, “alleged only to have agreed to a sponsorship, appeared in advertising, or worn the FTX logo on their clothing, should not be required to litigate complex claims about FTX.”
Lastly, the celebrities warn that allowing the lawsuit to proceed would “raise First Amendment concerns.” They stress that endorsements are a form of speech and emphasize Supreme Court precedent where the Court rejected liability for “the expression of an opinion about marketable securities.” The celebrities also underscore that their comments weren’t untruthful, and if those statements were misleading, the celebrities wouldn’t have known that at the time.
The celebrities have asked the presiding judge, K. Michael Moore, to schedule oral arguments in order to “further the Court’s understanding of the multiple grounds for dismissal.” The investors will have an opportunity to respond in their own filings.
