The Downfall of Cryptocurrency, and Celebrities
Loyola University Chicago School of Law, JD 2024
Cryptocurrency entered the mainstream economy in 2013 when Forbes listed Bitcoin as the best investment of that year, calling 2013 the “year of the bitcoin.” Then, in 2014, Bloomberg News made the statement that Bitcoin was one of the year’s worst investments. Since these early days, citizens and economists alike have remained skeptical of Bitcoin and other cryptocurrencies. Over the past few years, celebrities have gotten increasingly involved in “pushing cryptocurrency and non-fungible tokens at a speed once reserved for viral dances,” according to the Washington Post. In the wake of recent events, the Securities and Exchange Commission is beginning to crack down on celebrity endorsement that has gone too far.
Although Bitcoin started to gain popularity in 2013, Bitcoin’s origins date back to 2009 when a programmer or group of programmers operating as “Satoshi Nakamoto” first launched the cryptocurrency. When Nakamoto created Bitcoin, they created a blockchain system, where “each transaction forms an unbroken link on the chain,” that was intended to function as the “backbone of the cryptocurrency market.”
On May 22, 2010, a day otherwise referred to as “Bitcoin Pizza Day,” Bitcoin was first used as a form of currency to purchase something tangible. Within this transaction, two pizzas were purchased. The process of purchasing these pizzas included the Bitcoins being sent “to a volunteer in England, who made a transatlantic phone call and paid for the $30 delivery of pizza to Florida-based programmer Laszlo Hanyecz”.
The early days of cryptocurrency were marked by skepticism and trepidation and developments over the years have done nothing to change its public perception. An example of this controversy was in 2017 when Bitcoin owners found their wallets drained while the CEO of a major Bitcoin exchange was charged with embezzlement. This came after years of scandals, such as the Mt. Gox theft in 2010 or the Bitcoin Savings and Trust Ponzi scheme in 2012. This 2017 incident also came before even more years of the same, with events such as the celebrities at issue in this current case, showing how the world of Bitcoin and cryptocurrency have been shrouded in judgment (rightfully so) for almost a decade.
Celebrities at issue
Controversy continues to follow cryptocurreny. The Securities and Exchanges Commission (SEC) and Coinbase Global Inc. (Coinbase) are currently going head to head in a legal dispute that will “have outsize consequences for both sides.” The SEC notified Coinbase of its plan to commence a lawsuit for alleged violations of various investor-protection laws.
In late March, 2023, the SEC filed charges against numerous celebrities, such as Lindsay Lohan and Jake Paul. These charges by the SEC are part of the larger series of charges against Justin Sun, a cryptocurrency entrepreneur, and three of his large companies. The SEC also brought these charges against the celebrities who have been backers of Sun’s crypto companies, TRX and BTT. In total, the SEC has officially charged eight celebrities total for “illegally touting TRX and/or BTT without disclosing that they were compensated for doing so and the amount of their compensation.”
These cryptocurrency fraud charges specifically rest on the inclination that Sun and his companies have been ‘“orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation.”. The celebrities involved in these charges face up to $40,000 in fines and may be required to return whatever they were paid for their Twitter promotions.
The SEC’s fight to regulate
As an agency, the SEC is granted power by the Securities Exchange Act of 1934, which gives it the power over all aspects of the securities industry. The SEC is also intended to have “jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit issues by the Government.”
Throughout the years, the SEC and cryptocurrency have had a complicated relationship as it has spent much of its time going after crypto pundits by “charging various crypto startups and their respective executives with outright fraud,” in 2018. The most recent case between the SEC and cryptocurrency, not involving celebrities, has been Ripple vs SEC. Ripple is an XRP cryptocurrency that gained traction in the end of March, 2023, as investors began to gain confidence that it would eventually win its long legal battle against the SEC. Ripple is a company that is closely associated with the token and the SEC accuses Ripple, its CEO, and its co-founder of “breaching U.S. securities laws by selling XRP without first registering it with the regulator.” Ripple combats these allegations by “maintaining the view that XRP should be considered a digital currency rather than a security.”
This case, the fraud charges against the celebrities, and the recent developments in the cryptocurrency world will be critical to follow in the coming months to see whether this form of currency is here to stay, or if it isn’t worth the trouble and skepticism it is creating.