Is Tom Brady in Legal Peril Because of FTX?

woman on smart phone buying cryptocurrencyAnyone following the news in the cryptocurrency space is aware of the collapse of FTX, a cryptocurrency trading platform. The cause of FTX’s collapse, and the potential liability facing FTX’s founder, Sam Bankman-Fried, will be a topic for another article. This article focuses on a smaller, but legally (and publicly) interesting component of the collapse- whether FTX’s celebrity endorsers could face liability for their endorsements. Recently, a series of lawsuits have been filed against those endorsers, including long-time Pittsburgh nemesis, Tom Brady. Other defendants include Brady’s soon-to-be ex-wife, Gisele Bundchen, former Boston Red Sox slugger David “Big Papi” Ortiz, Golden State Warriors superstar Steph Curry, and comedian Larry David.

At the heart of the accusations against the defendants is that their endorsement goes beyond the typical celebrity endorsement of a shoe or cereal. Other Western Pennsylvania natives of a similar age to the author of this post surely remember Kendall Krunch.

Rather, the celebrity defendants are accused of breaking the Securities and Exchange Commission’s “Marketing Rule,” which essentially requires a paid endorser to disclose that they are being paid and the amount, which the endorsers did not do. The full 430-page explanation of the rule from the SEC can be found here: SEC Investment Adviser Marketing.

Brady’s defenses in civil suits likely will include arguments that cryptocurrencies are not yet regulated securities and that people who lost money in FTX bear some responsibility for their losses. To date, no investor suit against a celebrity endorser has prevailed. However, SEC enforcement has been more successful, as investor outcome is irrelevant to the question of whether the Marketing Rule was broken. Thus far, celebrities like Kim Kardashian, Floyd Mayweather, DJ Khaled, and Steven Seagal have faced SEC actions over the past several years and paid six or seven-figure settlements.

While a settlement between $157,000 (Seagal) and $1,260,000 (Kardashian) likely would not cause great financial distress to Brady and Bundchen, the cases are important reminders to celebrity endorsers in the cryptocurrency and NFT space. The Marketing Rule is particularly applicable to Instagram and other social media influencers who may be the SEC’s next targets. Failure to comply with the Marketing Rule could result in penalties and fines.

 

Pittsburgh Litigation Attorneys

David C. Weber handles a variety of litigation matters, including antitrust and securities fraud, breach of contract, construction, insurance bad faith litigation, and employment disputes. He can be reached at (724) 776-8000 or dweber@lynchlaw-group.com.

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