The Applicability of U.S. Securities Law remains the focus of these types of cases. According to the Securities Act of 1933, any investment contract involving public funds and expected to generate profits through the efforts of others may be considered a security. In the Astrals case, did investors purchase Non-Fungible Tokens (NFTs) or Galaxy tokens for financial returns? Did O'Neal and the project team fail to clearly disclose the risks of the project in their promotions? The answers to these questions directly impact the legal status of NFTs and tokens. However, the settlement agreement means that this issue has not been judicially determined, but rather ended in a compromise between the parties. As a result, the legal definition of whether NFTs are securities remains unresolved, and it leaves uncertain risks for future similar projects.
II. Legal and Moral Responsibilities of Celebrity Endorsements
The phenomenon of celebrities endorsing cryptocurrency projects is not new, but in recent years, it has drawn widespread attention from the public and regulators due to similar actions by figures like Kim Kardashian, who were fined. For celebrities, the promotion of cryptocurrencies and Non-Fungible Tokens (NFTs) is both an opportunity and a trap: on the one hand, they can leverage their vast influence to give the project widespread exposure and attract a large number of investors; on the other hand, if these endorsed projects have compliance risks, the endorsers may face accusations of market manipulation, misleading propaganda, and unregistered securities.
In the O'Neal case, a class action lawsuit in Florida accused him of failing to clearly explain the relevant risks in his promotions, and even intentionally misleading the public. Although the settlement agreement avoided direct legal penalties against O'Neal, it still sounded an alarm for all celebrities and project teams involved in the Web3 space. For those seemingly glamorous promotional activities, if there are undisclosed financial interests behind them, celebrities will face compliance responsibilities and a serious public trust crisis.
III. Does Musk Face the Same Risks as with Dogecoin?
Similar to O'Neal, Elon Musk has also drawn widespread attention for his frequent promotion of Dogecoin on social media. As one of the most influential people in the world, Musk's tweets can directly impact the price fluctuations of cryptocurrencies. In 2023, due to the price volatility of Dogecoin, Musk was accused by some investors of market manipulation and faced a class action lawsuit. However, unlike Astrals and Galaxy tokens, Dogecoin is more widely viewed as a payment tool rather than a security, and therefore does not meet the traditional standards of a security in legal determination.
The risk of market manipulation always exists. When celebrities publish content that may influence investment decisions, regulators will closely monitor whether they have subjective motives to manipulate the market, especially in a "pump and dump" pattern. If a celebrity's public support for a cryptocurrency is found to be for the purpose of selling their own holdings for profit, they are highly likely to face accusations of market manipulation. Although Musk has discussed Dogecoin from the perspective of humor and personal interest, his words and actions have undoubtedly set a precedent for future regulation, especially given his government roles.
IV. Future Compliance Outlook: Entering the Deep Waters of Regulation
In the past few years, Non-Fungible Tokens (NFTs) and cryptocurrencies have attracted a large number of investors due to their innovation and potential for high returns, but they have also been criticized for lack of regulation. The U.S. Securities and Exchange Commission's (SEC) accusations against multiple NFT projects indicate that regulators are gradually increasing their scrutiny of this industry. As mentioned in a previous article, although the regulatory environment may become more flexible, it does not mean that crypto companies can completely escape the constraints of the law, especially for those projects with centralized characteristics, which may still face strict scrutiny.
In the future, Web3 project teams must invest more effort in compliance, especially for projects involving public investors. If tokens or Non-Fungible Tokens (NFTs) are deemed securities, their issuance must comply with securities law requirements, including registration and transparent disclosure. As for celebrity endorsers, they need to carefully examine the compliance of any Web3 assets they promote, to avoid being held legally responsible for failing to disclose commercial relationships or potential conflicts of interest.
Case link: https://storage.courtlistener.com/recap/gov.uscourts.flsd.647550/gov.uscourts.flsd.647550.1.0.pdf
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