FOMO or fraud? The rise of celebrity crypto pump and dump schemes

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In the dynamic and often volatile landscape of the cryptocurrency market, a concerning trend has emerged, celebrity crypto pump and dump schemes.

This article delves into the unsettling phenomenon where influential figures exploit their status to manipulate digital asset prices.

While the fear of missing out (FOMO) has long been a driving force in the crypto space, the line between genuine enthusiasm and fraudulent activities blurs as celebrities leverage their reach to promote and profit from orchestrated market movements.

Examining recent cases and the broader implications for investors, this exploration seeks to shed light on the intersection of fame, social media influence, and potential financial malfeasance within the cryptocurrency ecosystem.

10 Celebrity crypto pump and dump schemes

For anyone considering investing in cryptocurrency or any other financial product, it’s crucial to be wary of celebrity crypto pump and dump schemes.

Just because a famous person promotes something doesn’t mean it’s a good investment. Here are 10 celebrity crypto pump and dump schemes:

#1 Kim Kardashian

In October 2022, reality TV star and influencer Kim Kardashian was fined $1.26 million by the Securities and Exchange Commission (SEC) for promoting a cryptocurrency called EthereumMax (EMAX) on her Instagram without disclosing that she was paid $250,000 to do so. Here’s a breakdown of the situation:

The promotion:

• In June 2021, Kardashian posted a story on her Instagram account to her 330 million followers, encouraging them to invest in EMAX tokens.
• The post included a screenshot of her phone with the EMAX logo and caption that read, “Guys, are you guys into crypto??? This is not financial advice but sharing what my friends told me about the EthereumMax token…”
• She also included a link to the EMAX website.

The violation:

• The SEC charged Kardashian with violating federal securities laws by failing to disclose that she was paid to promote EMAX.

According to the SEC, EMAX is a security, and promoting securities without disclosing compensation is illegal.

• Kardashian did not admit or deny the SEC’s charges, but she agreed to pay a $1 million penalty, disgorge the $250,000 payment she received, and not promote any crypto asset securities for three years.

Why this matter:

• Kardashian’s case serves as a reminder that celebrities and influencers must disclose their compensation when promoting any investment products, including cryptocurrencies.
• The SEC is increasingly scrutinising the crypto space, and this case sends a message that they will take action against those who violate securities laws.
• This case also highlights the importance of doing your own research before investing in any cryptocurrency, regardless of who is promoting it.

#2 Floyd Mayweather Jr

Professional boxer Floyd Mayweather Jr was fined a total of $300,000 by the SEC in two separate instances for failing to disclose payments he received for promoting cryptocurrencies on his social media platforms. Here’s a breakdown of both cases:

Case 1: Centra Tech:

• Date: November 29, 2018
• Cryptocurrency: Centra Tech (CTR)
• Payment: $100,000
• Platforms: Instagram and Twitter
• Violation: Mayweather promoted CTR on his Instagram and Twitter accounts to his millions of followers without disclosing that he was paid $100,000 to do so. He referred to himself as “Floyd Crypto Mayweather” and urged his followers to invest in CTR.

Case 2: Stox and Hubii Network:

• Date: November 29, 2018
• Cryptocurrencies: Stox (STX) and Hubii Network (HBN)
• Payment: $200,000 ($100,000 each)
• Platforms: Instagram and Twitter
• Violation: Similar to the Centra Tech case, Mayweather promoted STX and HBN on his social media without disclosing that he received $100,000 for each promotion.

Outcome:

• Mayweather reached a settlement with the SEC in both cases, agreeing to pay a total of $300,000 in penalties and disgorge the $300,000 he received in payments. He also agreed not to promote any securities (including cryptocurrencies) for three years without disclosing his compensation.

Significance:

• These cases were landmark rulings, marking the first time the SEC charged individuals for promoting ICOs (Initial Coin Offerings) without disclosing compensation.
• They served as a warning to celebrities and influencers about the importance of disclosing their financial ties when promoting any investment products, including cryptocurrencies.

#3 DJ Khaled

DJ Khaled, the music producer and recording artist known for his motivational anthems and flamboyant persona, was fined $150,000 by the Securities and Exchange Commission (SEC) in November 2018 for failing to disclose a $50,000 payment he received for promoting the cryptocurrency Centra Tech (CTR) on his social media platforms.

Here’s a breakdown of the situation:

The promotion:

In 2017, Khaled posted several promotional messages about Centra Tech on his Instagram account, which at the time boasted over 12 million followers. These posts included:

• A picture of Khaled holding a Centra Tech debit card with the caption “I just received my titanium centra debit card. The Centra Card & Centra Wallet app is the ultimate winner in Cryptocurrency debit cards powered by CTR tokens! #CENTRA #cryptocurrency #bitcoin #ethereum #futureofpayments”
• A video in which Khaled called Centra Tech “revolutionary” and “the future of finance”

The violation:

• The SEC charged Khaled with violating federal securities laws by failing to disclose that he was paid $50,000 to promote Centra Tech.
• According to the SEC, Centra Tech was a security, and promoting securities without disclosing compensation is illegal.

The outcome:

• Khaled did not admit or deny the SEC’s charges, but he agreed to pay a $100,000 penalty, disgorge the $50,000 payment he received, and not promote any crypto asset securities for three years.

Why this matter:

• Khaled’s case, along with the case against boxer Floyd Mayweather Jr. who was fined $300,000 for similar violations, served as a landmark ruling, marking the first time the SEC charged individuals for promoting ICOs (Initial Coin Offerings) without disclosing compensation.
• These cases sent a message to celebrities and influencers that the SEC is serious about regulating the promotion of cryptocurrencies and other securities.
• They also highlighted the importance of doing your own research before investing in any cryptocurrency, regardless of who is promoting it.

#4 Paris Hilton

As of today, there is no public record of Paris Hilton being fined by the Securities and Exchange Commission (SEC). While she has been involved in controversies related to cryptocurrency promotion, the SEC hasn’t taken any official action against her.

Here’s a breakdown of the situations surrounding Paris Hilton and crypto:

1. Promoting ProBit Token:

• In 2019, Paris Hilton promoted ProBit Token (PROB) on her Twitter account, encouraging her followers to participate in an Initial Exchange Offering (IEO).
• While she disclosed that she was a “brand ambassador” for ProBit, some argued that the disclosure wasn’t clear enough about the potential financial compensation she might have received.
• However, no official charges or fines were levied against Hilton by the SEC or any other regulatory body regarding this promotion.

2. Lawsuit from XRP investors:

• In 2020, Hilton was named as a defendant in a lawsuit filed by XRP (Ripple) investors alleging that she and other celebrities promoted XRP as a security without proper disclosure.
• The lawsuit claimed that these promotions contributed to inflating the price of XRP, leading to losses for investors when the price later crashed.
• The lawsuit is still ongoing, and no final judgment has been reached.

3. General concerns about celebrity crypto endorsements:

• Paris Hilton’s case, along with those of other celebrities like Kim Kardashian and Floyd Mayweather Jr, highlights the growing scrutiny on celebrity endorsements in the cryptocurrency space.
• Regulatory bodies like the SEC are increasingly focussed on ensuring that such endorsements are transparent and disclose any potential conflicts of interest, such as financial compensation.

Important reminder:

While there’s no record of an SEC fine against Paris Hilton for crypto promotion, it’s crucial to exercise caution when encountering any celebrity endorsements, especially in the volatile and unregulated world of cryptocurrency. Always conduct your research, consult with financial experts, and understand the risks involved before making any investment decisions.

#5 Steven Seagal

In 2020, action movie star Steven Seagal agreed to pay the Securities and Exchange Commission (SEC) $314,000 to settle charges related to his promotion of a cryptocurrency called Bitcoiin2Gen (B2G) without disclosing that he was paid to do so. Here’s a breakdown of the situation and why Seagal ultimately chose to settle with the SEC:

The promotion:

In 2018, Seagal posted several promotional messages about B2G on his social media platforms, including:

• A picture of himself holding a B2G token with the caption “I love Bitcoiin2Gen! The future of currency is now!”
• A video in which he called B2G “a great investment opportunity” and urged his followers to “get involved early”.

The violation:

• The SEC charged Seagal with violating federal securities laws by failing to disclose that he was paid $250,000 in cash and $750,000 worth of B2G tokens to promote the cryptocurrency.
• According to the SEC, B2G was a security, and promoting securities without disclosing compensation is illegal.

Why Seagal settled:

Seagal did not admit or deny the SEC’s charges, but he agreed to pay a $157,000 penalty, disgorge the $325,000 in compensation he received, and not promote any crypto asset securities for three years.

There are several possible reasons why Seagal chose to settle with the SEC:

• Avoiding a costly and lengthy legal battle: Litigation can be expensive and time-consuming, and Seagal may have decided that settling was the most cost-effective way to resolve the matter.
• Protecting his reputation: A public trial could have damaged Seagal’s reputation, and settling allowed him to avoid the negative publicity.
• Minimising the penalties: By settling, Seagal avoided potentially facing larger penalties and reputational damage if found guilty in court.

The SEC’s message:

• The SEC’s case against Seagal sent a strong message to celebrities and influencers that they must disclose any compensation they receive for promoting cryptocurrencies or other securities.
• This case, along with others like those involving Kim Kardashian and Floyd Mayweather Jr, highlights the growing scrutiny on celebrity endorsements in the crypto space.

#6 Logan Paul

Logan Paul, the controversial YouTuber and boxer, has come under scrutiny from the Securities and Exchange Commission (SEC) on multiple occasions for his promotion of cryptocurrency projects.

1. 2022:

• In August 2022, the SEC launched an investigation into Paul’s promotion of the cryptocurrency SafeMoon after a significant price drop followed his endorsement.
• The investigation focussed on whether Paul adequately disclosed that he was paid to promote SafeMoon and whether his promotion constituted market manipulation.
• The outcome of the investigation is still unknown.

2. 2023:

• In March 2023, the SEC charged Paul, along with his brother Jake Paul and other celebrities, with failing to disclose payments they received for promoting the cryptocurrency Zoomer (ZOON).
• The SEC alleged that Paul promoted ZOON on his social media channels without disclosing that he was paid $275,000 in ZOON tokens to do so.
• Paul settled the charges with the SEC by agreeing to pay a $140,000 penalty and disgorge the $275,000 in ZOON tokens he received. He also agreed not to promote any securities for three years without disclosing his compensation.

Criticisms:

• Critics have accused Paul of being reckless and irresponsible in his promotion of cryptocurrencies, given the volatile nature of the market and the potential for investors to lose money.
• They argue that Paul should be more transparent about his financial relationships with the projects he promotes and disclose any potential conflicts of interest.

Logan Paul’s response:

• Paul has defended his actions, claiming that he did not intentionally mislead investors and that he believed in the projects he promoted.
• He has also stated that he has learned from his experiences and is now more careful about disclosing his financial relationships with cryptocurrency projects.

The SEC and celebrity endorsements:

• The SEC has been increasingly cracking down on celebrities who promote cryptocurrencies without disclosing their compensation.
• The agency has issued several public statements warning celebrities about their obligations under securities laws.
• The cases against Logan Paul and other celebrities are seen as a signal that the SEC is serious about holding celebrities accountable for their promotion of cryptocurrencies.

Overall, Logan Paul’s relationship with the SEC is complex and ongoing. It is important to note that the SEC has not found Paul guilty of any wrongdoing, and the outcome of the investigation into SafeMoon is still unknown. However, the charges against Paul for promoting ZOON without disclosure highlight the importance of transparency and accountability in the cryptocurrency space.

#7 Elon Musk and DogeCoin

Elon Musk and DogeCoin have a complex and intriguing relationship, filled with tweets, memes, price swings, and regulatory scrutiny. Here’s a breakdown:

The early days:

• DogeCoin started as a joke in 2013, based on a Shiba Inu meme.
• Musk, known for his love of memes and Internet culture, began mentioning DogeCoin in 2018, sparking slight price increases.

The hype begins:

• In 2021, Musk’s mentions of DogeCoin became more frequent and enthusiastic, often coupled with Shiba Inu memes.
• This fuelled a meteoric rise in DogeCoin’s price, multiplying its value by thousands in a few months.
• The “Doge Army”, a community of enthusiastic DogeCoin investors, formed and actively promoted the cryptocurrency.

Controversy and scrutiny:

• Musk’s influence on DogeCoin’s price drew criticism from some, accusing him of market manipulation.
• The SEC investigated Musk’s tweets about DogeCoin, but no charges were filed.
• Despite the controversy, Musk continued to promote DogeCoin, even naming it the “people’s crypto” and announcing Tesla would accept it for merchandise purchases (briefly).

Recent developments:

• DogeCoin’s price has fallen significantly since its 2021 peak, along with the broader cryptocurrency market.
• Musk’s mentions of DogeCoin have become less frequent, though he still expresses support for the community.
• Legal battles surrounding Musk’s Dogecoin tweets continue, with some investors claiming they suffered losses due to his influence.

Key points:

• Musk’s influence on DogeCoin’s price is undeniable, raising concerns about celebrity-driven market manipulation.
• The rise and fall of DogeCoin highlight the volatility and risks inherent in cryptocurrency investments.
• The legal battles surrounding Musk’s tweets demonstrate the evolving regulatory landscape for crypto promotion.

Overall:

The relationship between Elon Musk and DogeCoin is a fascinating case study in the power of memes, celebrity influence, and the unpredictable nature of the cryptocurrency market. It serves as a cautionary tale for investors and highlights the importance of doing your research before making any investment decisions, especially in the volatile world of crypto.

#8 The rise and fall of the Squid Game Token

Remember the hit Korean drama Squid Game that took the world by storm in late 2021? Well, it wasn’t just the show that captured everyone’s attention. A cryptocurrency called “Squid Game” (SQUID) also emerged, riding the wave of the show’s immense popularity. But what started as a seemingly exciting opportunity quickly turned into a notorious pump and dump scheme, leaving many investors with nothing but regrets.

A meteoric rise:

Launched in November 2021, the SQUID token promised access to an exclusive online game inspired by the show, with the potential to win real money. Fuelled by the show’s massive fanbase and clever marketing tactics, the token’s price skyrocketed by a staggering 11,000% within just a few days.

Red flags emerge:

However, amidst the hype, several red flags emerged. The project’s whitepaper was riddled with grammatical errors and inconsistencies, and the developers remained anonymous. Additionally, the promised online game never materialised, raising concerns about the legitimacy of the project.

The rug pull:

On November 21, 2021, the inevitable happened. The developers abruptly drained the SQUID token’s liquidity pool, essentially stealing millions of dollars from investors. The token’s price plummeted to near zero within hours, leaving many heartbroken and financially devastated.

The aftermath:

The Squid Game token scam sent shockwaves through the cryptocurrency community. It highlighted the dangers of investing in unregulated and hyped-up projects, particularly those associated with popular trends or memes. Regulatory bodies around the world took notice, increasing scrutiny on the cryptocurrency space.

Lessons learned:

The Squid Game token scam serves as a stark reminder for all investors:

• Do your research: Never invest in any project without thoroughly researching its background, team, and technology.
• Beware of hype: Don’t get swept away by trends or celebrity endorsements.
• Invest cautiously: Only invest what you can afford to lose, and remember that cryptocurrency is a highly volatile market.

Remember, if something sounds too good to be true, it probably is.

While the Squid Game token scam may be over, its story continues to serve as a valuable cautionary tale for anyone venturing into the world of cryptocurrency. By staying informed and exercising critical thinking, investors can protect themselves from similar scams and make informed decisions about their investments.

#9 Gisele Bündchen, Stephen Curry, Naomi Osaka, David “Big Papi” Ortiz, Kevin O’Leary, Larry David, Shaquille O’Neal and FTX

FTX, the now-bankrupt cryptocurrency exchange, garnered endorsements from a diverse range of celebrities across various industries, including athletes, actors, comedians, and supermodels. While some endorsements were more prominent than others, all contributed to FTX’s rise in popularity, making it crucial to acknowledge their involvement:

High-profile endorsements:

• Tom Brady: Former NFL quarterback signed a multi-year deal with FTX, including an equity stake and starring in their Super Bowl LV ad.
• Gisele Bündchen: Supermodel and Brady’s wife also promoted FTX on social media, contributing to brand awareness.
• Stephen Curry: NBA superstar partnered with FTX as an ambassador, featuring in marketing campaigns and offering exclusive NFTs.
• Naomi Osaka: Pro tennis player became an equity owner of FTX and promoted the platform through social media and appearances.
• David Ortiz: Former MLB player served as an FTX brand ambassador, particularly targeting the Latin American market.

Other notable:

• Kevin O’Leary: Shark Tank investor partnered with FTX as a strategic advisor and appeared in promotional videos.
• Larry David: Comedian starred in a humorous Super Bowl ad for FTX, highlighting the platform’s user-friendly interface.
• Shaquille O’Neal: Former NBA star collaborated with FTX on various initiatives, including educational programmes and NFT drops.
• Tom Brady Sr: Brady’s father also played a role in FTX’s promotional efforts, particularly during Super Bowl LV week.

What happened to FTX in simple terms

Imagine FTX as a fancy store selling digital coins called crypto. It promised low fees, exciting features, and even sports sponsorships. Celebrities like Tom Brady and Snoop Dogg were seen hanging out with FTX, making it look cool and trustworthy.

Here’s what happened:

1. More people bought into the hype: Seeing their idols using FTX, many others, including regular folks, jumped in to buy those digital coins. This made FTX seem even more popular and its coins more valuable.
2. But it was like a house of cards: Turns out, FTX wasn’t as strong as it pretended to be. It was taking some people’s money to pay others, kind of like a pyramid scheme.
3. Then, one day, everything started shaking: People realised something was wrong and tried to take their money out of FTX. But there wasn’t enough left, and FTX collapsed. People lost their investments, and the celebrities who endorsed it faced criticism for not making people aware of the risks.

How did celebrity endorsements help FTX?

• Trust and familiarity: Seeing stars like Tom Brady and Snoop Dogg using FTX made it seem safe and reliable. People tend to trust those they admire, so they were more likely to invest.
• Hype and excitement: Celebrities create buzz, and that buzz spread around FTX. It made the platform seem trendy and popular, attracting more buyers.
• Visibility and reach: Celebrities have millions of followers who see their endorsements. This gave FTX massive exposure and helped it reach a wider audience.

However, it’s important to remember:

• Celebrities aren’t financial experts: They’re paid to promote things, not give investment advice. Just because they use FTX doesn’t mean it’s right for you.
• Do your own research: Don’t rely on celebrity endorsements alone. Research any investment carefully before putting your money in it.
• Crypto is risky: It’s a volatile market, and even high-profile companies can collapse. Be prepared to lose money if you invest.

In conclusion, FTX used celebrity crypto endorsements to quickly gain popularity and trust, but its house of cards eventually crumbled. Remember, always be cautious when investing in anything, especially if celebrities are involved. Do your own research and understand the risks before making any financial decisions.

Important note:

While these celebrity crypto endorsements helped FTX gain traction, it’s crucial to acknowledge the potential conflicts of interest and the risks associated with celebrity endorsements in the volatile cryptocurrency space. The platform’s sudden collapse and ongoing legal proceedings raise concerns about the validity of these celebrity crypto endorsements and highlight the importance of thorough research before investing in any cryptocurrency.

#10 Perry Matlock, John Rybarcyzk, Edward Constantin, Thomas Cooperman, Gary Deel, Mitchell Hennessey, and Stefan Hrvatin

Eight individuals have been accused by the government of illicitly amassing over $100 million in stock market profits through a scheme that exploited their novice investor followers on social media.

The Justice Department and the Securities and Exchange Commission (SEC) revealed that between early 2020 and April of the current year, these individuals, collectively boasting a following of more than 1.5 million on Twitter, orchestrated a “pump-and-dump” strategy.

According to the SEC, seven of these social media influencers portrayed themselves as successful traders on platforms such as Twitter and Discord chat rooms. They encouraged their followers to purchase specific stocks, and as the prices or volumes of these promoted stocks increased, the influencers consistently sold their shares without disclosing their intentions to dump the securities while actively endorsing them.

Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit, stated, “The defendants used social media to amass a large following of novice investors and then took advantage of their followers by repeatedly feeding them a steady diet of misinformation.”

The individuals named in the SEC’s complaint include Perry Matlock (@PJ_Matlock), John Rybarcyzk (@Ultra_Calls), and Edward Constantin (@MrZackMorris) from Texas; Thomas Cooperman (@ohheytommy) and Gary Deel (@notoriousalerts) from California; Mitchell Hennessey (@Hugh_Henne) from New Jersey; and Stefan Hrvatin (@LadeBackk) from Florida. Another individual, Daniel Knight (@DipDeity) from Texas, co-hosted a podcast endorsing the defendants as experts and traded alongside them.

The Justice Department highlighted that the defendants flaunted their “extravagant lifestyles” to deceive others into believing they were proficient stock traders. If convicted, each individual faces a maximum penalty of 25 years in prison for conspiracy to commit securities fraud and each charged count of securities fraud.

Constantin also faces a maximum penalty of 10 years in prison if convicted of engaging in unlawful monetary transactions. The SEC is intensifying its efforts to curb the activities of social media influencers and celebrities promoting financial products, including cryptocurrency.

The case:

• Accused: Eight individuals: Perry Matlock, Edward Constantin, Thomas Cooperman, Gary Deel, Mitchell Hennessey, Stefan Hrvatin, John Rybarczyk, and Daniel Knight (co-host of a podcast promoting the others).
• Charges: Securities fraud, aided and abetted securities fraud (Knight).
• Platform: Twitter and Discord.

Scheme:

• Promoted themselves as successful traders to gain large followings.
• Bought certain stocks then encouraged followers to buy via price targets or claims of buying/holding.
• Dumped their shares without disclosing their intent while prices were high.
• Knight: aided the scheme by promoting individuals as experts and providing a forum for manipulation.

Damages: $100 million.

Location: Southern District of Texas.

Status:

• SEC complaint seeks injunctions, disgorgement, interest, penalties, and a penny stock bar (Hrvatin).
• Parallel criminal charges filed by DoJ and US Attorney’s Office.
• SEC investigation ongoing.

Key points:

• The defendants allegedly used social media to manipulate stock prices for personal gain.
• They gained trust by portraying themselves as successful traders.
• They encouraged followers to buy without disclosing their intent to sell.
• The SEC is seeking significant financial penalties and restrictions against the defendants.

Additional information:

• The SEC and US Attorney’s Office offer resources on avoiding investment fraud.
• The SEC investigation resulted from a referral from the Division of Examinations.

Important takeaway:

For anyone considering investing in cryptocurrency or any other financial product, it’s crucial to do your own research and be wary of celebrity crypto endorsements. Remember, just because a famous person promotes something doesn’t mean it’s a good investment. Always consult with a financial adviser before making any investment decisions.

Sources:

Pump & Dump Cryptocurrency List https://walletinvestor.com/pump-and-dump

Kim Kardashian pays over $1 million to settle SEC charges linked to a crypto promo on her Instagram https://www.cnbc.com/2022/10/03/kim-kardashian-settles-sec-charges-instagram-crypto-promotion.html

Celebrities Mayweather and Khaled, Fined by the SEC, But Dismissed from Private Civil Lawsuit https://blockchain.bakermckenzie.com/2019/05/20/celebrities-mayweather-and-khaled-fined-by-the-sec-but-dismissed-from-private-civil-lawsuit/

SEC Charges Against Social Media Influencers in $100 Million Stock Manipulation Scheme https://www.sec.gov/litigation/litreleases/lr-25591

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