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Texas is investigating celebrities who endorsed FTX, the now-bankrupt cryptocurrency firm, over potential violations of state securities laws.
The Texas State Securities Board last month began investigating FTX’s operations to determine whether the exchange’s high-yield crypto accounts provided residents with unregistered securities. Since the company’s November 11 collapse, the board has significantly expanded its investigation to examine the impact of this multi-billion dollar bankruptcy.
And promotions for FTX by celebrities like Steph Curry of the Golden State Warriors and Tom Brady of the Tampa Bay Buccaneers are now part of this expanded investigation, first reported by Bloomberg News and confirmed by The Texas Tribune.
It also comes amid a class-action lawsuit filed in Florida against Curry, Brady and other celebrities — mostly high-profile athletes — alleging FTX used their endorsements as part of a program designed to take advantage of “inexperienced investors.” It also names former CEO of FTX, Sam Bankman-Fried.
“Anyone providing investment advice in Texas is normally required to be registered and truthfully disclose all known material facts,” said Joe Rotunda, the state board’s executive director. “There is no other judicial or regulatory system for celebrities in Texas.”
It’s currently unclear if any prominent Texan is under investigation, but Rotunda said his team is still compiling a list of relevant parties based on recent court filings from current FTX CEO John J. Ray III and the class action lawsuit. In particular, it examines what the promoters disclosed, how they were compensated, and how their promotions were written and filmed.
“From a securities regulation standpoint and from a bankruptcy standpoint, it is important to note how FTX has encouraged clients and Texans to use and invest in FTX,” he said.
He added that his team also needs to consider how the relevant law applies in this situation, as it was established by a 1985 case in which an investment and financial newsletter was faxed out.
“That’s a far cry from social media and broadcast ads, let alone tokens and blockchains, isn’t it?” said Rotunde.
Curry, Brady and FTX did not respond to Tribune requests for comment.
They are not the first celebrities to be investigated or fined for promoting crypto. Last month, Kim Kardashian agreed to pay the Securities and Exchange Commission $1.26 million to settle allegations that she had hyped a crypto token on Instagram without making it public to inform that she had received $250,000 for the post.
Ultimately, Rotunda said examining celebrity endorsements is not his top priority, but the issue remains on his radar while his FTX investigation continues. Beyond Texas, the crypto firm also faces numerous other state, federal, and international investigations.
“Right now we’re trying to figure out how a $32 billion company went to zero almost overnight,” he said.