In September of 2017, Floyd Mayweather and DJ Khaled starting backing a fraudulent ICO from Centra Tech.
Neither had revealed, however, that they’d received money for the plugs.
Last March, a federal grand jury in New York indicted the company’s three co-founders – Sorhab Sharma, Raymond Trapani, and Robert Flakes – for defrauding investors in a $60 million ICO scheme.
Following the indictments, the US Securities and Exchange Commission (SEC) undertook an investigation. The SEC then found that Khaled had received $50,000 to heavily promote Centra Tech’s ICO. Mayweather had received $100,000. Khaled and Mayweather had pushed followers on Facebook and Instagram to back the ICO.
Regulators in the US had previously warned digital tokens could fall under federal securities laws.
Now, both have reached an agreement with the SEC.
Under the deal, Mayweather will pay the federal government $300,000 in disgorgement. He’ll also pay an additional $300,000 in penalties and $14,700 in interest. Mayweather had promoted two other ICOs in addition to Centra Tech.
Khaled will disgorge $50,000 and pay an additional penalty of $100,000 along with $2,700 in interest.
Both have agreed not to promote any securities to their followers – Mayweather for three years, and Khaled for two years.
Speaking on the agreement, Stephanie Avakian, Co-Director at the Enforcement Division, said,
“Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements. Social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds.”
This isn’t the first music industry cryptocurrency scandal — far from it.
Atlanta rapper T.I. and a partner now face a securities class-action lawsuit for allegedly defrauding investors who spent millions on FLiK.
And Ghostface Killah’s CREAM cryptocurrency has already plunged 96.3% since January, though we’re not sure if anything fraudulent has occurred. Elsewhere, 50 Cent was found to be lying about his ‘accidental’ bitcoin earnings, which was enough to raise SEC interest.
But rappers aren’t the only guilty parties. Earlier this year, embattled digital retailer platform eMusic announced an overly ambitious initial coin offering (ICO). The company wants to raise $70 million.
Then, a report revealed that eMusic has failed to pay artists and labels. Sony’s The Orchard pulled its catalog from the service last summer, publicly lambasting the company.
Executives have remained notoriously quiet as they seek to meet an overly-ambitious price tag without first settling the company’s debt with the music industry.
You’ve likely heard of the ‘endless benefits’ of cryptocurrency and its blockchain underpinnings.
On the positive side, blockchain technology could theoretically allow for an unprecedented level of transparency. On streaming music services, for example, artists, songwriters, and producers could enjoy total accountability with pre-determined splits that are instantly paid.
Cryptocurrency could also revolutionize the way we watch videos.
Brave Software, for example, rolled out a payments system built entirely on blockchain. Users could purchase cryptocurrency tokens to donate to their favorite content creators.
At this stage, however, the technology remains largely unproven, untested, and unreliable. And, subject to a myriad of different scams.