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From Eminem to Snoop Dog, Tony Hawk to Lionel Messi, William Shatner to Brie Larson, music, sports, and Hollywood celebrities have eagerly jumped on the NFT (non-fungible token) bandwagon. Whether launching their own collections, purchasing an expensive profile pic, or simply endorsing new artists, celebrities have embraced blockchain technology and have been extolling the virtues of owning a unique digital collectible across their social media platforms.
So what's the harm? Well, according to consumer watchdog Truth In Advertising (TINA), by failing to disclose (i) their material connection to the NFT brands as well as (ii) the risks associated with investing in volatile speculative digital assets, these celebrities may be engaging in deceptive advertising practices.
Take, for example, Justin Bieber. In January, the pop star made headlines for spending $1.3 million on a Bored Ape Yacht Club NFT, reportedly 300 percent more than the valued market price. But that's not what TINA was interested in. Instead, they focused on an alleged undisclosed connection between the Biebs and an NFT collective called the inBetweeners. Prior to his overpayment for BAYC, Justin had been touting the inBetweeners' NFTs – all of which were reportedly gifted to him, and none of which he disclosed. Furthermore, according to TINA, the singer, who is apparently a partner in the collective, had been promoting the company “without ever disclosing the risks associated with investing in such speculative digital products.” TINA may be particularly focused on this example given Justin's fanbase – impressionable preteens, teens, and young adults.
In June, TINA similarly warned actress Reese Witherspoon about her promotion of certain NFTs created by World of Women without disclosing that her company, Hello Sunshine, was engaged in a partnership with the brand.
So why does TINA care? Well, for starters, the Federal Trade Commission (FTC) Guides Concerning the Use of Endorsements and Testimonials in Advertising require that any material connection – such as a personal stake in a company, the receipt of compensation for an endorsement, or the receipt of free product – be clearly and conspicuously disclosed to the public. This is to protect the public who, without such disclosures, may not understand that a celebrity endorsement might be biased if the celeb is receiving payment in exchange for the endorsement. The public also may not realize that a celebrity's endorsement of a certain NFT might increase its value, a practice known as artificial price influence.
TINA has taken matters into its own hands. Last week the advocacy organization sent letters to more than a dozen celebrities warning them “that celebrity NFT promotions is an area rife with deception” and that failure to properly disclose their material connection to any NFT company they promote may lead to potential FTC regulatory action against them.
Importantly, these letters come on the heels of the FTC's recent deployment of its own Notice of Penalty Offenses, in which the agency put over 700 companies on notice for engaging in potentially deceptive endorsement practices. As each potential violation carries a civil penalty of up to $43,792, it's not just a slap on the wrist. An improperly disclosed tweet, 'gram, or 'tok could cost a brand thousands. (For background on these Notices, see our previous posts here, here, here, and here.) That said, the FTC has done more talking than acting as far as holding celebrities or influencers accountable for failing to disclose a material connection. To date, the only enforcement action the FTC has brought against an influencer was in the CSGO Lotto case. While the FTC touted that as its “first-ever complaint against individual social media influencers,” the individuals against whom the action was brought also owned the online gambling service they were promoting.
And it's not only the FTC that celebs should be concerned with; it's also the U.S. Securities and Exchange Commission (SEC). While the SEC has not yet ruled NFTs a security, celebs should take heed from the commission's 2017 warning to famous endorsers against the promotion of cryptocurrency initial coin offerings (ICOs) without issuing proper disclosures. In short, failure to disclose the nature, scope, and amount of compensation received in exchange for a promotion could open a celebrity endorser to potential liability for violation of the anti-touting provisions of federal securities laws.
So a word to the wise for all brands and celebs looking for their next NFT collab: Regardless of the product or the medium in which such endorsement takes place, remember to follow federal guidelines regarding endorsements and to clearly and conspicuously disclose the relationship of the parties and the volatility of any digital asset investment. Celebrities have their own brands to protect; they certainly don't want to be accused of deceiving their loyal fanbase – whether intentionally or not.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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