SEC’s Crypto Lawsuit Ensnares Jimmy Butler
This week the Securities and Exchange Commission filed a total of 18 charges against cryptocurrency exchanges Binance and Coinbase as part of two lawsuits brought in Washington D.C. and New York federal courts.
The cases, which accuse Binance and Coinbase of not giving investors necessary protections and committing securities law violations, surface as athletes and teams face potential liability over their promotion of cryptocurrency.
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Even if sports figures aren’t found legally responsible for investors losing money, they may possess relevant evidence, such as emails to and from crypto executives, that could be subpoenaed or insights that could lead them being called to testify in SEC cases.
The growing list of celebrities implicated in the crypto legal fallout is star-studded.
Take Miami Heat guard Jimmy Butler. He’s a defendant in Sizemore et al. v. Zhao et al., a federal lawsuit brought by Binance investors who accuse Butler, Binance founder Changpeng Zhao and others of unauthorized sales of securities, fraud, unfair competition and conspiracy. The complaint portrays Butler as duping his fans into buying crypto assets by lending his “celebrity and credibility,” and investors who lost money pin some of the blame on Butler.
According to court records, plaintiffs’ attorneys on Tuesday requested Butler turn over communications and other recordings, including contracts and payment receipts, regarding his business dealings with Binance. Butler is also asked to disclose whether and how he conducted due diligence before urging his fans to buy. Butler’s “Trust Yourself” social media ad campaign in partnership with Binance is specifically targeted.
The SEC will keep tabs on materials Butler and others provide. The SEC accuses Binance and Zhao of orchestrating “an elaborate scheme to evade U.S. federal securities laws” by “allowing and concealing” customer access to Binance.com. The SEC quotes a message from Binance’s chief compliance officer, who told a colleague, “We are operating as a f–king unlicensed securities exchange in the USA bro.” By allegedly using “sham controls” and other deceptive maneuvers, Binance executives could “commingle customer assets or divert customer assets as they please.” The SEC says “the safety of billions of dollars of U.S. investor capital [were] at risk and at Binance’s and Zhao’s mercy.”
As for Coinbase, the SEC claims it made billions of dollars without registering its services as an exchange, broker or clearing agency. Coinbase investors were allegedly deprived of essential protections, including inspection by the SEC and safeguards against conflicts of interest.
Both Binance and Coinbase have issued statements denying any wrongdoing. Coinbase’s CEO, Brian Armstrong, tweeted the case against his company is “exclusively focused on what is or is not a security” and underscored federal agencies issuing “conflicting statements” about whether, and how, securities law governs cryptocurrencies.
Kevin Durant and his company Thirty Five Ventures have partnered with Coinbase, which in 2021 became the exclusive cryptocurrency platform partner of the NBA and WNBA.
As the Binance and Coinbase litigation plays out, Tom Brady, Steph Curry, Shohei Ohtani and Naomi Osaka are among the athletes defending themselves against claims they duped fans into spending money on collapsed crypto exchange FTX. In April, they moved to dismiss a lawsuit brought by FTX investors, arguing there is a lack of causation between their promotion and the plaintiffs’ buying decisions and their endorsements are protected speech under the First Amendment.
Expect more fallout for sports as regulators, courts and the markets figure out how investors were deceived and how cryptocurrency ought to operate going forward.
