The five-time world boxing champion Floyd Mayweather Jr. and the versatile music producer and executive DJ Khaled have agreed to pay hefty penalties for failing to disclose money they were paid to promote investments in cryptocurrencies, regulators said Thursday.
The Securities and Exchange Commission, or SEC, said the charges were the first it has ever brought involving what are known as initial coin offerings, or ICOs.
Mayweather, 41, the undefeated winner of world titles in five weight classes, and Khaled, 43, whose real name is Khaled Mohamed Khaled, were legally required but failed to disclose payments from issuers of ICOs to promote their offerings after the SEC warned last year that coins sold in ICOs may be securities subject to federal securities law, the SEC said.
Neither man admitted or denied guilt, but both agreed to pay six-figure penalties, the agency said.
Mayweather agreed to pay $300,000 in restitution, $300,000 in penalties and $14,775 in interest, while Khaled agreed to pay $50,000 in restitution, $100,000 in penalties and $2,725 in interest.
Mayweather and Khaled also agreed not to promote any securities, digital or otherwise, for three years, and two years, respectively, while Mayweather agreed to cooperate with the SEC's investigation of alleged ICO fraud.
The main ICO issuer in both cases was Centra Tech Inc. of Miami, whose founders were indicted in May by a federal grand jury in New York City on charges of having solicited investors to buy unregulated securities. The two other issuers weren't identified.
According to the indictment, the Centra Tech founders misled investors into believing that they had struck partnership deals with companies like Visa and Mastercard. The SEC filed a civil action against Centra's founders in April.
The idea, according to SEC charging documents, was to raise capital so Centra could set up what it promoted as "the world's first Multi-Blockchain Debit Card and Smart and Insured Wallet” — a financial system that would purportedly allow holders of cryptocurrencies to convert their assets into legal tender that they could spend using Visa- or MasterCard-backed "Centra cards."
According to SEC charging documents, Mayweather failed to disclose that he was paid $300,000 to promote coin offerings by three issuers to his 39.2 million followers on his Twitter, Instagram and Facebook accounts last year.
Khaled, meanwhile, failed to disclose that Centra paid him $50,000 to promote one of its coin offerings on his Twitter and Instagram last year, according to the documents.
(The Instagram link cited in Khaled's Sept. 27 tweet has since been deleted.)
Stephanie Avakian, co-director of the SEC's enforcement division, said Thursday that the charges highlighted the importance of full disclosure to investors.
"With no disclosure about the payments, Mayweather and Khaled's ICO promotions may have appeared to be unbiased, rather than paid endorsements," she said.
Steven Peikin, the Enforcement Division's other co-director, said that investors should be skeptical of investment advice posted to social media platforms and that they shouldn't 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," he said.