The psychology behind celebrity endorsements of products seems simplistic. The human brain recognizes celebrities similarly to how it recognizes people we actually know.1 People feel that they know the celebrity and that they can trust the celebrity and when that celebrity endorses a product people feel they are receiving advice from a friend.
That is why it is so important that when a celebrity endorses an investment, investors do their research before investing in that celebrity-endorsed security.
Celebrity endorsements are everywhere, from Tom Selleck promoting reverse mortgages to Alex Trebek promoting life insurance to Jennifer Anniston promoting skin moisturizer. Nike is purported to spend more than $475 million per year on athletes endorsing their products and Marketwatch reveals that a simple announcement form a brand signing a celebrity or athlete can cause stock prices to rise slightly and increase sales by 4 percent on average.2
There are rules governing celebrity endorsements when it comes to investments. These anti-touting provisions of the federal securities laws require that celebrities and other individuals who promote securities must disclose the nature, scope and amount of compensation received in exchange for the promotion. The SEC issued a report in 2017 which warned that coins sold in initial coin offerings (ICOs) may be considered securities.
A case of purported fraudulent celebrity endorsement, with a high-profile actor, was recently brought to resolution by the Securities and Exchange Commission (SEC).
In February 2020, the SEC settled charges against actor Steven Seagal for failing to disclose to investors payments he received for promoting an initial coin offering (ICO) conducted by Bitcoiin2Gen (B2G).3 Seagal was promised $250,000 in cash and $750,000 in B2G tokens in exchange for his promotion. Seagal used a press release and posts on his social media accounts to encourage followers to get in on the Bitcoiin2Gen’s ICO. There was also a press release issued by Bitcoiin2Gen which quoted Seagal endorsing the ICO.
The case was settled without Seagal admitting or denying the SEC’s findings. Seagal agreed to pay $157,000 in disgorgement, which represents the actual promotional payments he received, plus prejudgment interest and a $157,000 penalty. As part of the settlement, Seagal can’t promote any securities for three years.
The SEC’s Office of Investor Education and Advocacy issued an Investor Bulletin on Celebrity Endorsements in November 2017.4 In that bulletin, they recommend that investors independently research investment opportunities. The bulletin further advises that investors “never make an investment decision based solely on a celebrity endorsement or other information you receive through social media, investment newsletters, online advertisements, email, investment research websites, internet chat rooms, direct mail, newspapers, magazines, television or radio.”5
If you think you have been a victim of investment fraud or broker negligence, the Law Offices of Peter C. Rageas, P.C. can help. Our Michigan Securities Law Firm has over 20 years’ experience in helping investors recover losses as a result of financial schemes and mismanaged accounts. We have successfully represented hundreds of investors in stockbroker mediation, arbitration and litigation claims. Call us at 313-334-7767 for a case evaluation!
3 Actor Steven Seagal Charges with Unlawfully Touting Digital Asset Offering, www.sec.gov, 2/27/2020
4,5 Investor Alert: Celebrity Endorsements, U.S. Securities & Exchange Commission, 11/1/2017