On Dec. 14, 2022, the SEC announced charges against eight social media influencers in a $100 million securities fraud scheme in which they allegedly used social media platforms to tout various stocks. Seven of the eight defendants proclaimed they were successful traders and amassed a social media following of hundreds of thousands. They allegedly engaged in a pump-and-dump scheme. The eighth defendant is alleged to have co-hosted a podcast in which he promoted the other defendants as expert traders and gave them a forum to spread their misinformation. The complaint seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties. The Department of Justice’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Texas have also filed parallel criminal charges. The SEC, again, warned investors to be careful in following unsolicited online advice.
This serves as a reminder that, in addition to FTC advertising requirements, the SEC has strict rules when it comes to promotional activities relating to securities, which in the SEC’s view includes almost all forms of digital assets, as set out in the SEC’s guidance on celebrity endorsements. This guidance includes a requirement that any paid promoter, celebrity or otherwise, of a security or a digital asset must disclose the nature, scope and amount of compensation received in exchange for the promotion. This would include compensation from tv/radio and print advertisements, as well as promotions on social media sites.