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Two Celebrities Charged with Unlawfully Touting Coin Offerings (sec.gov)
133 points by smacktoward 4 months ago | hide | past | web | favorite | 67 comments



Someone once commented about this, “You shouldn’t take investment advice from someone who gets punched in the face for a living.”


I mean... sure... but then, Mayweather is one of a handful of people who's ever grossed more than $1b in personal earnings, together with Michael Jordan and Tiger Woods. And some boxers have done terrifically financially outside of boxing, too, take George Foreman who made a quarter billion dollars off of a grill. The entire reason Mayweather was even asked to promote this thing is because he represents financial success like almost no other athlete on the planet ever has in the history of mankind. It's easy to dismiss him as a guy who gets punched in the face for a living, that's not the issue here.

At the same time I can list hundreds of people who give poor financial advice who have advanced degrees and decades of experience in finance. I mean hell, Mike Tyson is the posterboy for a boxer with some of the highest earnings who ended up bankrupt, and he hired Donald Trump as his financial adviser at one point haha.

In short, I certainly would be less inclined than average to take advice from someone who gets punched in the face for a living, but at the end of the day, you find smart people everyone, and you find treacherous people everywhere, too. I'd rather have an unremarkable advisor than a treacherous one (sadly Mayweather in this case was both, but not because he gets punched in the face for a living).


Don't forget Gaius Diocles, the roman charioteer [1]:

"His winnings reportedly totaled 35,863,120 sesterces, allegedly, over $15 billion in today’s dollars, an amount which could provide a year's supply of grain to the entire city of Rome, or pay the Roman army at its height for a fifth of a year. Classics professor Peter Struck describes him as "the best paid athlete of all time"."

[1] https://en.m.wikipedia.org/wiki/Gaius_Appuleius_Diocles


interesting. Where do people find this stuff? This will be my "thing i learned today".


I don't know, I've heard him come up so many times now but it never really checks out. For one I sort of put him in the category of Jesus Christ... yes he existed, was a wise person and had a great following, but he didn't walk on water or return from the dead despite reported eyewitness accounts that eventually led to biblical canon. Only in this case, Diocles is even older, less known and less written about. Can we really take his income at face value, or is it part of the legendary narrative and exaggerated like happens so often in history?

Hand-wavey inflation statistics over the course of 2000 years of different economic systems and currencies on the basis of a few datapoints just don't work anyway, even if the 35m figure is correct. They may give a starting point, but you have to show a source, a decent methodology to back it up. This is it for Struck's claim (on which he stands completely alone as the only source ever cited in the hundreds of fluff-pieces about this factoid):

> His total take home amounted to five times the earnings of the highest paid provincial governors over a similar period—enough to provide grain for the entire city of Rome for one year, or to pay all the ordinary soldiers of the Roman Army at the height of its imperial reach for a fifth of a year. By today’s standards that last figure, assuming the apt comparison is what it takes to pay the wages of the American armed forces for the same period, would cash out to about $15 billion.

By his same token, take the earnings of the highest paid provincial governor (Jerry Brown at 200k), multiply it by five and you get $1m a year. So perhaps in 15 thousand years he'll get to $15b in earnings.

Or take the grain for the city of Rome for one year. An average person used about 18 bushels of grain per year, currently costs $5 a bushel, so the entire city could be fed with $90m, equal to his lifetime earnings. Not quite $15b either.

Besides, there are plenty of other decent price comparisons. A loaf of bread was 1/2 sesterce, translate it to a $1 loaf of bread and his lifetime earnings were around $70m.

There's also plenty of references to the amount of gold the entire military cost at the time (particularly because many coins at the time were minted in gold, so sesterces can easily be translated to a weight in gold). Gold being a pretty good store of value, it can be useful across for valuation comparisons over time. It would put his lifetime incomes around $100m, too.

And then his comparison, it's the worst and least applicable. He takes his salary relative to the costs of running a certain army at that time. Then he translates that to the costs of the US army at this time. That's not how you calculate the present value. It only says something about the relative sizes and expenditures on the army between these two times, not on his salary. A more apt comparison would be to take soldiers from a country with a most similar level of economic development today, like Malawi, and look at their income. It's about $500, then multiply it by the amount of soldiers his lifetime earnings were able to provide for. Looking at it this way, it'd be like having $14m today in Malawi (without access to the international market products). You'd be filthy rich, but you'd have to spend it mostly on paying people and agricultural products.

Which brings me to the last point: what is even the point of an across-time comparison like this. As rich as he was, he had no flush toilet, no electricity to read books at night, no airconditioning, air travel, a library of millions of songs, movies and books, not the medical care to live past 43 years old, or the ability to spend his wealth on a trip into space or to Mars. The best he could do with his money is have people prepare his food and bath and see to his sexual needs, not all that much more. The richest people in the year 0 can't compare on many fronts with most middle-class people today, in terms of wealth.


Sounds like you should take advice from their business managers.


> he represents financial success like almost no other athlete on the planet ever has in the history of mankind

What about Michael Jordon?


Shaq is probably a better example considering how much money he has made just by promoting products that have nothing to do with basketball. Michael Jordon's biggest business success is putting his name on shoes which is tangentially related to his profession.


Shaq-fu and Kazaam come to mind


He's in the very first sentence of my post...


And that someone was right


The whole idea behind FM is that he doesn't get punched at all


Good thing it's for ICO's only. Imagine if it were for everything. A third of Instagram would get fined...


> Imagine if it were for everything. A third of Instagram would get fined...

It is actually, under a different federal agency for non-securities related advertisements.

The FTC already has ruled that people should at least put #ad on their posts, and has already fined influencers that didn't.

When securities are involved, all you have to do is mention how much you got paid to provide safe harbor from the federal securities regulator, and then to provide safe harbor from private securities litigants all you have to do is mention that you have no licenses and that the payment makes you unobjective. Bury it in line 30 of the Disclaimer. THERE, NOW ITS LEGAL

Currently instagram and some other social media sites don't have a good way to display long disclaimers, but you can get crafty in the stories, or in multi-slide posts.

Unfortunately, when it isn't clear that federal securities laws apply, you don't know if its just an FTC issue, or an SEC issue. So, we're getting there.


> The FTC already has ruled that people should at least put #ad on their posts, and has already fined influencers that didn't.

Didn't know this. For others:

> In May, the agency released dozens of letters it had sent to companies and stars giving them notice that they must tell fans about compensation for promotions on social media.

> Those are known within the agency as educational letters, whereas the recent ones are known as warning letters. For repeat offenders, the FTC could seek to impose fines.

https://www.reuters.com/article/us-usa-ftc-celebrities/ftc-d...

Does anyone know if any fines have actually been issued?


The FTC is an entirely different authority than the SEC.


who did you write that for given that the post you replied to says

> under a different federal agency for non-securities related advertisements.


Sorry, missed that. You're right, not a high-value comment.


> A third of Instagram would get fined...

And nothing of value will be lost.


It's for securities full stop I had thought...


Most ICOs are considered by SEC to fall under securities regulations as most ICOs fit the criteria of the Howey test - if the thing you're offering requires an investment of money in some common enterprise, there is an expectation of profits, and any profit comes not from your efforts but from efforts of either whoever's selling or whoever you invest in; then selling or issuing or promoting that thing falls under all the rules and regulations for securities.


It’s amazing how influential celebs can be even in matters that seem way outside their expertise or career.


The thing that blows my mind is how "influencers" will routinely be paid well into the six-figures for sharing a photo of themselves using a product, and apparently that's the most effective way for these brands to use their marketing budget.


You might be interested in reading the 1928 book "Propaganda" by Edward Bernays, the so-called "father of public relations". It describes at length how, among many other techniques, paid influencers are effective for making people value your product more (e.g. invite the top fashion blogger to wear your hat at an event, then the secondary influencers will take note, and then the proles will note after the secondary influencers, etc.). Quite creepy but eye-opening book.

https://en.wikipedia.org/wiki/Propaganda_(book)


What he probably did not predict is just how many of today's influencers are famous for very little besides getting paid for influencing.

I guess we all are a bit guilty of giving our attention in part because we'd like to be like those who receive it, and getting money for what others have to pay for, . It's most visible in networks with a follow/follow-back economy like Instagram, but bloggers, conference speakers, anywhere a personal brand has wider reach than friends and family.


Not saying ad spend on branding is a very optimised area in general - but the prices of billboards / tv ads etc are sky high and have a much lower degree of targeting. There is an assumption that their prospective and current customers will take note of the fact that the celeb is using their particular product and this will influence a purchase or reduce churn to a rival brand. It may be an effective channel for them.

Bonkers when you take a step back. But logical given the context.


Marketing departments have a budget and they have to spend it. The connection between A (spending the money) and B (people buying the product) doesn't have to be that well supported. A lot of advertising is just "brand awareness". A company wants their brand the last one you saw when you walk into a grocery store.


I suspect this is comparably easy to measure since it's often a single event? I know some YouTube sponsors do so because they see the traffic/sale spike, which lets them estimate the effect.

You may recall some books spiking up the best seller lists because Oprah recommended them.


In the case discussed here (celebrities pumping ICOs) it would be easy to manage because they likely have affiliate links or specific urls. Even without those, the ICO could watch incoming traffic over a certain time and see the spike of IG visitors after a post.

In my original comment, I was more referring to advertisement like Tide putting up a billboard. How do they know it works? Well, I'm sure they do market surveys "Have you seen this billboard?" but it's probably full of bias. But in the grand scheme of things, it's just for market awareness as I said. Keep Tide on the minds of consumers.


Spending that money can also give the marketing employees a chance to socialize with celebrities and attend some cool parties.


A single one-off photo or video of an influencer with a product would rarely if ever produce enough revenue to justify a 6 figure spend, even with the largest influencers (Selena Gomez, Ariana Grande, etc.). Those deals with high per-post prices are usually for several posts/videos/stories. For example, a $1 million deal for 10 posts spread out over a few weeks or months with someone that has a massive following may have a reasonable chance of generating positive ROI, while a one-off deal for $100K is almost certain to lose money. It isn't just the exposure that makes it effective, it's aligning the product with the influencer. Doing this dramatically improves the conversion rate among their followers. I'd much rather have a 10% conversion rate on an influencer with 10K followers than I would want to have a 0.5% conversion rate on someone with 100K followers. I'll spend far less on the 10K media buy, and make twice the revenue.

Dan Bilzerian, for example, generated over $500K in marijuana prodct sales on black Friday, largely because of his social media posts. But he has aligned his entire Instagram account and his perceived lifestyle around the brand (he owns the company). That figure represents the culmination of months of posts surrounding his brand of marijuana products. The same with Kylie Cosmetics - it has become something that Kylie Jenner is synonymous with.


Are you familiar with Fashion Nova?

Their only form of marketing is paying a network of 3,000 influencers to post on social media about their clothes.

(FYI:Some of the dresses could be considered NSFW) https://wwd.com/fashion-news/fashion-features/inside-fashion...


There was nothing NSFW in there, I was very disappointed.


I can confirm


Cheaper than running a superbowl ad. And much more targeted/effective.


And not just A-listers like these two. Jenny McCarthy is B-list at best, and she has huge influence over the anti-vaccer movement.


I wonder if these payments to celebrities worked?

E.g., did the $100K that Centra Tech gave Floyd Mayweather Jr (according to the article) pay off for them?


I have never quite understood the definition of a security. The Wikipedia article doesn't really help, unfortunately.


In US law a) it's duck-typed and b) the relevant question is "Is the pitch to the buyer 'Purchase this thing and, through another person's efforts, you will make money.'? Then it's almost always a security."

Quoting Marine Bank v. Weaver:

> The definition of "security" in the Securities Exchange Act of 1934 is quite broad. The Act was adopted to restore investors' confidence in the financial markets, and the term "security" was meant to include "the many types of instrument that, in our commercial world, fall within the ordinary concept of a security." The statutory definition excludes only currency and notes with a maturity of less than nine months. It includes ordinary stocks and bonds, along with the "countless and variable schemes devised by those who seek the use of the money of others on the promise of profits. Thus, the coverage of the antifraud provisions of the securities laws is not limited to instruments traded at securities exchanges and over-the-counter markets, but extends to uncommon and irregular instruments. We have repeatedly held that the test "'is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.'"

The formal definition:

> The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.


If you use the shorthand "tradable financial instruments sold in anticipation of appreciation or money returns" you won't be far off.

The law in the US makes a sort of essential determination that no reasonable person stakes their livelihood on the appreciation of a pair of exclusive sneakers, which is why Instagram "influencers" aren't generally on shaky legal ground.


My nitpick is that "tradable" is non-central to the definition, even though most things that people think of as securities are both tradable in theory and have active markets in them.

A security without an active market in it? Still a security. A security which can't be traded even theoretically? Still a security.

A reason to make this nitpick is that promoters sometimes use "Oh this is just a commercial relationship between business partners and we're locking you into it in all sorts of interesting ways; therefore, we're not offering a security" as an argument. The government takes a dim view of it. (This was a major issue in the fractional orange groves case.)


I agree; another colorable shorthand might be "if someone can plausibly claim it's a security, it's probably a security".

I think the important bit for this thread is to distinguish between product endorsement and investment endorsement. The law, of course, sees those as two very different things.


It is a trade-able asset. Unlike a product, you expect a trade-able asset to increase in price (that's why you buy it).


professional boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled


Obligatory DJ Khaled "You played yourself" quote.


What about John McAfee?


You can get him to tattoo your ICO on his body. Next level: https://www.chepicap.com/en/news/5022/mcafee-s-new-skycoin-t...


Why would I want to support such a creep though? Booty bumping bath salts with his sixteen year old girlfriend while he plots the murder of his neighbor, then runs away when he realizes his life of crime is a poor choice of his time given the consequences?


The documentary about him really opened my eyes. I had always viewed him as an eccentric but harmless, fairly smart guy. Then you find out he date-raped his research assistant (unless you think she randomly decided to make that up). He can go fuck himself.


You'd run away too if you could, if you knew what was good for you.


I think wavefunction is implying McAfee shouldn't have committed the crimes in the first place.


Sure, and I'm not sure I'd invite McAfee to dinner, but regardless of whether he committed a crime or not I'd be looking for the exits when the law enforcement of many SA countries came looking for me. Even teen-fucking murderers have a sense of self-preservation.


Man the SEC takes no prisoners. Everyone fears them. Everyone cuts a deal with them. The SEC always gets it's perp. I wish everyone feared the Law like they do the SEC. I wish the Law could execute like the SEC does. Heck, they even got Martha.


[flagged]


> not prosecuting Enron executives or countrywide loan officers

You picked two things the SEC went ballistic over [1][2].

[1] https://www.sec.gov/news/press/2004-94.htm

[2] https://www.sec.gov/news/press/2009/2009-129.htm


You realize the CEO and COO of Enron went to jail, right? Technically, it was the FBI, but still.


Heh, sorry to be a nit,but CEO didn't quite make it to jail. He died while "vacationing" between sentencing & incarceration. Very shady, but history written says it was natural causes.


Also the SEC has no criminal enforcement power. They have to refer the case go FBI/DOJ.


Maybe it's based on the fact they promoted ICOs to consumers without disclosing they were given tens and hundreds of thousands of dollars to do so.


I don't understand how someone can get in trouble for promoting imaginary currency.

Can you get in trouble for promoting fake money from Monopoly and trying to convince people that the collectible value of the Monopoly money will increase?


> Can you get in trouble for promoting fake money from Monopoly and trying to convince people that the collectible value of the Monopoly money will increase?

Monopoly money isn’t a security. ICO tokens are. Securities laws, including those requiring disclosure of sales incentives, apply to securities.


> It's an entity with a value specified by the eminent. If it's a fashion startup, one token can be equal to one dress or a yearly license of a software in case of a hi-tech startup. You even can issue tokens of yourself and a token holder will be able to buy an hour of your work with the token. You can “tokenize” everything.

From https://www.google.com.hk/amp/s/cointelegraph.com/ico-101/wh...

So basically if you top up your namecheap account it will count as a token? Looks like yes, from this definition. Please explain to me why I'm wrong.


Like any other thing the SEC would consider a security, it’s complicated and technical. The article refers to https://www.sec.gov/litigation/investreport/34-81207.pdf as the SEC’s basis for considering how “coins” relate to securities.


You may be right that your Namecheap account balance is a kind of token. But not all tokens are securities. The SEC is only interested in ones that are.


With something like trying to pump Monopoly money I imagine you'd just get hit will some flavor of fraud charge if someone bought, and maybe a conspiracy charge depend on whether or not you were paid to do it.


Yes? This is a basis of fraud and confidence schemes. Especially when it will enrich you.


The basis of fraud is not promoting something. It's deceiving someone. Not all promotion is fraudulent.

That being said, this particular regulatory disclosure requirement can arguably be considered a prohibition on a form of fraud, on the basis that all paid endorsements where the payment is not disclosed to the target audience are misleading the audience about the endorser's level of genuine interest in the product, and failing to disclose a materially significant fact about the endorsement that a reasonable audience would expect to be disclosed.

I'm not sure if a statutory rule is the best way to address this though. Its rigidity and one-size-fits-all approach may catch a lot of non-fraudulent actions in its net, and avoiding that should be the first priority of the justice system. Common law would better account for the peculiarities of each case and how they weigh into the question of whether an action is fraudulent.


> for failing to disclose payments they received for promoting investments in Initial Coin Offerings (ICOs).

First paragraph.




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