A federal judge on Wednesday dismissed most of the claims brought against Tom Brady, Shohei Ohtani, Steph Curry, Gisele Bündchen, Naomi Osaka, David Ortiz, the Golden State Warriors and other celebrity defendants over their promotion of failed cryptocurrency exchange FTX.
U.S. District Judge K. Michael Moore reasoned that although these celebrities probably should have been more curious about FTX before telling their fans to invest, that type of shortcoming doesn’t establish the celebrities had actual knowledge of fraudulent acts—a required element for some of the claims. He reached the same conclusion about claims brought against a group of YouTube influencers.
The plaintiffs are 16 people from a handful of countries including the U.S., Canada and Australia. They invested in FTX, lost money and blame celebrities and influencers for recommending the company. FTX’s founder, Sam Bankman-Fried, was convicted on fraud, money laundering and conspiracy charges and last year was sentenced to 25 years in prison. He oversaw a scheme where investors’ funds were moved around through multiple entities before the scheme imploded.
All told, the plaintiffs offer nearly 200 pages of allegations regarding celebrities and influencers who, among other things, lent their NIL, appeared at glitzy events, and were featured in advertisements and social media posts that encouraged fans to invest. The lawsuit contains 14 claims under different states’ laws and involve unfair and deceptive practices, conspiracy to induce payments in a fraudulent enterprise, and aiding and abetting.
The celebrities and influencers are advantaged in that courts are generally skeptical of claims that product endorsers ought to be held liable for wrongdoing committed by an endorsed company. The basic logic is that endorsers usually didn’t know of the wrongdoing and were merely paid to put in a good word.
About 20 years ago, retired MLB All-Star Steve Garvey defeated a lawsuit brought by the Federal Trade Commission over his endorsement of Enforma, a weight-loss system that sounded too good to be true, and was: Lose weight while “just standing or sitting around doing nothing.” The system included such products as the “Fat Trapper” and “Exercise in a Bottle.”
It turned out that “doing nothing” isn’t so healthy, and the FTC went after the company—and Garvey, whose infomercials promoted Enforma. The U.S. Court of Appeals for the Ninth Circuit sided with Garvey. It explained that to hold him liable required proof he had “actual knowledge of any material misrepresentations” and was “recklessly indifferent to the truth or falsity of any representations he made.”
In recent years, the FTC has become more concerned about the use of social media to promote goods and services. It’s not always clear if the promoter (influencer) is merely being paid to say positive words or genuinely believes in what he or she is saying. Federal judges have held that social media posts and videos that fail to disclose a paid relationship can run afoul of the law.
In the FTX case, the celebrities contend they weren’t involved in FTX beyond promoting it and that they shouldn’t be blamed for adults who decided to buy into FTX. Yet Moore highlighted that the celebrities negotiated deals with FTX that called for “substantial compensation packages.” Compensation packages included multimillion-dollar payments, equity, cryptocurrency and NFTs.
Moore underscored that while the celebrities were paid a lot, they still weren’t partners in FTX. The celebrities, the judge explained, may have been “uninformed, negligent, or event reckless” in urging fans to make “risky financial decisions” about products for which they lacked relevant expertise. But the plaintiffs haven’t shown these celebrities knew about FTX’s fraud or that they had any intent to deceive or defraud.
Alan Milstein, a litigator who has represented celebrity athletes such as Allen Iverson and Carmelo Anthony, told Sportico that Moore “rightfully dismissed the claims, recognizing that paid spokesmen should not be held liable if a consumer finds that, say, light beer neither tastes great nor is less filling.” Milstein added that pro athletes “are often the targets of litigation because of their deep pockets” and “in no case was this more obvious” than endorser-related litigation “arising out of the FTX collapse.”
Moore dismissed 12 of the 14 claims but advanced a pair of claims that allege violations of Florida and Oklahoma securities laws. He explained the celebrities could be “rendered agents” of FTX within the meaning of securities laws given their promotional work and the nature of the investments. The judge acknowledged there is legal uncertainty about the application of securities laws to FTX and, more broadly, cryptocurrency.
The celebrities insist there is no authority or relevant court precedent finding that a trading platform such as FTX counts as a security within the meaning of securities law. Securities generally include investments with expectations for profits, but crypto platforms have resisted application of securities law. The offering of a security must comply with registration, disclosure and a bevy of other requirements. Moore reasoned that at this point in the litigation, the plaintiffs have plausibly pleaded the celebrities were associated with FTX and may have been agents of unregistered securities.
Even though most of the case has been dismissed, the advancement of two claims means that pretrial discovery will be scheduled. The celebrities will be asked to give sworn testimony and share documents, including emails related to their FTX involvement. It’s possible the case settles. Shaquille O’Neal and Trevor Lawrence settled claims stemming from their involvement with FTX. Their celebrity brethren might do the same.
