As the mania over initial coin offerings surges, U.S. regulators are growing concerned that mom-and-pop investors are unwisely jumping in based on celebrity endorsements.
The U.S. Securities and Exchange Commission issued a surprising warning Wednesday, advising that stars often lack sufficient expertise to ensure investments are appropriate. Even worse, pitches could be unlawful if famous backers’ compensation isn’t disclosed, the agency said.
“Celebrities who endorse an investment often do not have sufficient expertise to ensure that the investment is appropriate and in compliance with federal securities laws,” the SEC said in its statement. “If you are relying on a particular endorsement or recommendation, learn more regarding the relationship between the promoter and the company and consider whether the recommendation is truly independent or a paid promotion.”
The SEC didn’t name any specific celebrities. Stars who have pushed ICOs include Paris Hilton, Floyd Mayweather and DJ Khaled.
The SEC statement represents the agency’s latest effort to sound alarms about the white-hot ICO market. In recent months, SEC Chairman Jay Clayton has repeatedly cautioned that the space is probably full of fraud.
Clayton also has said that the regulator’s enforcement division is focused on investigating violations. He says a particular concern is that the space is ripe for what’s know as pump-and-dump schemes, where fraudsters talk up an asset and then sell out at an inflated price once the dumb money pours in.
This article was provided by Bloomberg News.