For Brand Ambassadors, FTX should be a Wake-Up Call

For celebrities, professional athletes, and public figures, the decision to become a brand ambassador is generally a business decision.  But bad business decisions can have legal, financial, or reputational consequences.

Within the span of the past week, cryptocurrency exchange FTX failed to complete a deal to be acquired, filed for bankruptcy, allegedly suffered a hack, and saw its founder and now-former CEO, 30-year-old Sam Bankman-Fried, resign.

As of this writing, Tom Brady, Shaquille O’Neal, the FTX Arena and Miami Heat, and even Major League Baseball, among others, are still listed on the ftx.us website as brand ambassadors or partners.

Also as of this writing, Brady and O’Neal, among other celebrities and athletes, have been named with Bankman-Fried as codefendants in a class action lawsuit.

Wholly unrelated to the FTX matter, in recent years, Kim Kardashian, Floyd Mayweather, and John McAfee were among other celebrities and public figures whose conduct in the crypto space caught the attention of the SEC.  Although each had its own nuance, the matters alleged unlawful touting—something of which most or all of the celebrities and public figures involved had probably never heard.

As explained succinctly in the SEC’s complaint against McAfee, however, promoting a security without disclosing that you are being paid to do so is unlawful “touting” and violates the federal securities laws.

Stated differently, endorsing a product line or a service provider is different from endorsing a security.

Kardashian and Mayweather, as well as others, were able to resolve their SEC matters.  McAfee passed away before his matter could be resolved.

While the FTX matter does not, at least as of yet, involve allegations of touting, for celebrities and organizations, getting involved in securities, in any endorsement role or promotional capacity, can carry risk.

With respect to the celebrities, athletes, and organizations that got into bed with FTX, although they may or may not have done anything wrong, their names are presently associated with a scandal that is expected to be talked about for several more news cycles and for some time to come, as regulators, law enforcement, and plaintiff’s lawyers take aim at the now-failed cryptocurrency exchange.  Whether this is simply a reputational matter, or whether there could be legal or financial consequences, time will tell.

Investigative due diligence might have avoided the problem.  Ongoing monitoring and risk management might have created an opportunity for a timely exit.

Now, however, FTX’s ambassadors and partners should be speaking with counsel, who in turn should be speaking with investigations consultants, to determine what was known or should have been known, and when.

Likewise, those ambassadors and partners should be prepared to engage in any communications or reputation management that might be or become necessary.

For everyone involved in the FTX matter—investors and traders, ambassadors and partners, and FTX, itself—these are early days.  There will be more to come, especially as the matter moves its way through bankruptcy court, and District Court, including the need to trace what may have been improperly transferred and, separately, missing assets.

For celebrities, professional athletes, public figures, and organizations, in particular, immediate takeaways include the importance of knowing the law, conducting due diligence, and making sure reputations are properly managed.  The FTX matter should serve as a timely, healthy wake-up call.

This client advisory is intended to highlight certain issues and is not intended to be comprehensive or to provide legal or other professional advice. If you have questions, you should contact your counsel or other advisors and on matters related to our work we welcome you or them contacting us.