It’s a harsh awakening for celebrities who have entered the wild west of initial coin offerings amid the Bitcoin craze.
Late Tuesday, the Securities and Exchange Commission charged the founders of an ICO, Centra, with fraud, saying the creators raised $32 million from investors with an intricate marketing campaign, including the use of paid endorsements from prominent celebrities such as boxer Floyd Mayweather and singer DJ Khaled.
“We allege that Centra [Tech] sold investors on the promise of new digital technologies by using a sophisticated marketing campaign to spin a web of lies about their supposed partnerships with legitimate businesses,” said Stephanie Avakian, co-director of the SEC’s Division of Enforcement. “As the complaint alleges, these and other claims were simply false.”
Among other things, Centra’s co-founders Sohrab Sharma and Robert Farkas claimed that they had partnered with Visa and MasterCard to create a debit card that allowed users to immediately spend or covert their Centra tokens into legal tender—a partnership that did not exist, the SEC alleged.
Thousands of investors are said to be impacted by the alleged fraud. Centra was first hit with a class action lawsuit in December.
Neither Mayweather nor DJ Khaled were named in the suit, though both were named “official brand ambassador and managing partner” at the firm. Nor have they responded to requests for comment from Fortune. Since questions were raised about Centra, Mayweather has deleted some posts in connection to the ICO.
The SEC did, however, warn celebrities that they could be violating securities law by promoting an ICO without disclosing the nature and amount of their compensation.
“A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws,” the SEC said in November.
That came after several prominent celebrities began touting less well-known ICOs in 2017. Mayweather has touted the Hubii Network and Stox, neither of which seemed to have much more than a website and plan to launch before their coin offerings. Paris Hilton, meanwhile, touted the Lydian Coin.
Regulators and investors, though, have generally been far more wary of the ICO space, with the lack of regulatory oversight and the youth of the industry making it an easy space for fraudulent schemes.
While posts promoting Centra on Mayweather’s Twitter page still stand, links pointing to a Facebook post are now dead.
Mayweather has also in the past posted photos of himself holding the Centra debit card, which Centra claimed allowed for purchases using cryptocurrency anywhere that accepts Visa or Mastercard.
“You can call me Floyd Crypto Mayweather from now on,” boxer Floyd Mayweather wrote in an August Twitter post at perhaps what was the height of cryptomania.
On Wednesday, neither DJ Khaled nor Mayweather made mention of cryptocurrencies in the social media posts.