Paul Pierce, Mayweather Face Reboot of Celebrity Crypto Lawsuit
Basketball Hall of Famer Paul Pierce and boxing legend Floyd Mayweather Jr. were among five celebrities sued Monday in a California federal court by cryptocurrency investors who say they were duped by the famous endorsers.
The 167-page complaint is the third of its kind for In Re EthereumMax Investor Litigation. In addition to Pierce and Mayweather, it names Kim Kardashian, Russell Davis and Antonio Brown as “promoter” defendants and a group of businesspeople as “executive” defendants. Pierce is also listed as an “insider trading” defendant.
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Last December, Judge Michael Fitzgerald dismissed the lawsuit while permitting the investors to file an amended complaint. In doing so he denounced the rapid rise of largely unregulated crypto currencies and rebuked the role played by celebrities in promoting them on social media.
“This action demonstrates that just about anyone with the technical skills and/or connections can mint a new currency and create their own digital market overnight,” Fitzgerald wrote. He added the case underscores “the power of social media in allowing celebrities to directly communicate with their millions of fans with a touch of a button.”
Those two factors, Fitzgerald insisted, enabled “unvetted and highly volatile investment ventures to go viral based solely on the paid-for word of celebrity promoters,” which in turn led to “inevitable” investor losses.
But Fitzgerald questioned whether celebrities committed illegal fraud or other unlawful acts. Investors, he reasoned, should have acted “reasonably” before they based “their bets on the zeitgeist of the moment.” Stated differently, investors would have been better off listening to actual experts instead of celebrities who, despite their enthusiasm and influence, are often ignorant on the details or value of what they promote.
Case law generally supports the proposition that spokespersons aren’t liable for championing businesses later found to be misleading or worse, because, the logic goes, they likely weren’t aware of wrongdoing and weren’t in a position to know.
But investors, represented by attorney John Jasnoch, refiled their case on Monday with additional details and assertions. They argue that celebrities who aggressively hawked crypto were different in important ways. These celebrities often made personal and off-the-cuff pleas on social media instead of reading scripted lines on produced advertisements. They were also often crypto investors themselves, with access to top company officials. Celebrity investors might have been aware of non-public information and used that as an inside trader would.
Since last December, the Securities and Exchange Commission has acted against Pierce in ways relevant to the litigation.
In February, the former Boston Celtics star and ESPN commentator paid $1.4 million in a penalty and other fees to resolve allegations he made “false and misleading” statements on social media about EMAX tokens. He also failed to disclose payment he received for those statements.
Pierce didn’t admit to wrongdoing in the settlement, but SEC chair Gary Gensler said Pierce’s case was a “reminder” to celebrities that “the law requires you to disclose to the public from whom and how much you are getting paid to promote investment in securities, and you can’t lie to investors when you tout a security.”
The complaint describes several “lifelong” basketball fans who closely followed Pierce and saw him repeatedly recommend EMAX tokens for their growth potential and price increases. Those promotions allegedly “induced” them to buy. And, had Pierce disclosed his stake and other “omitted information,” his fans would have known the truth.
Pierce tweeted in May 2021 he was in “for the long haul” as an EthereumMax investor. Three days later, the plaintiffs say, a display wallet associated with Pierce sold off millions of EMAX tokens and then sold more not long thereafter. The plaintiffs argue Pierce “had access to material, non-public information about the timing of various celebrity promotions of the EMAX Tokens (including his own)” and “improperly used that information to perfectly time his purchases and sale of EMAX Tokens to maximize his ill-gotten profits.”
The investors contend Pierce was “not alone” in what they describe as an “insider trading scheme.” Although Mayweather isn’t listed as an insider trading defendant, he allegedly “received a cut of the money” that a business associate of his and Pierce’s “generated from improperly frontrunning the celebrity promotions of EMAX Tokens.”
Whether these and other claims can be proven remains to be seen. Judge Fitzgerald could dismiss the lawsuit again. But for celebrities who quickly jumped into promoting crypto without understanding the laws, they might not only have lost money, they could face liability, too.
