Author: Aiying
With Trump likely to be re-elected as the US President, the future development of the cryptocurrency and NFT markets has attracted widespread attention. During Trump's first term, he impressed the liberalization of the financial market and his supportive policies for businesses. This time, his return may bring new changes and challenges to the cryptocurrency market. For details, see Aiying's article yesterday, "'Gold is worth a thousand ounces of gunfire'? A review of Trump's love-hate relationship with cryptocurrency".
In recent days, with the release of the news of Trump's election, the cryptocurrency market has experienced a round of rise, and the prices of Bitcoin and other major cryptocurrencies have climbed, reflecting the market's expectations and reactions to future policy changes. This article will explore the compliance issues of Trump-related crypto projects and the case analysis of KOLs and celebrities promoting cryptocurrency projects.
According to information collected by Aiying, the SEC has been cracking down on such undisclosed celebrity promotions in recent years. KOLs can quickly spread information through social media and help projects attract more investment. In March, Monad Labs completed a huge round of financing with a valuation of up to $3 billion. Venture capital firms such as Paradigm participated. Some KOLs can invest at a price one-fifth lower than this valuation, and these Kol investors can sell within a few months instead of waiting for years like equity investment. This financing method looks very attractive, but it has also attracted the attention of the SEC.
Kol's promotion of encryption projects mainly involves several regulatory issues
First, the SEC's regulations are mainly focused on the Securities Act and the Investment Advisers Act, which require celebrities or influencers who promote securities to disclose any form of compensation to ensure that investors have access to transparent information. These regulations are designed to prevent misleading advertising and potential fraud.
These remunerations may include, but are not limited to, the following:
1. Cash Payment
This is the most direct form of compensation and refers to the cash rewards that influencers receive directly.
2. Tokens or Cryptocurrencies
Influencers may receive compensation in the form of tokens or other cryptocurrencies. These tokens can be crypto assets issued by the project or other forms of digital currency.
3. Equity
Influencers may receive equity in a company or project as compensation. This form of compensation is common in early-stage financing for startups and blockchain projects.
4. Other forms of financial compensation
In addition to direct cash or tokens, compensation can include any form of financial benefit, such as free products or services, a share of future revenue, or other forms of financial compensation.
5. Contracts and Agreements
Any remuneration stipulated in any form of written contract or agreement, whether it is a one-time payment, regular payment, performance bonus, etc., needs to be disclosed.
The provision requires anyone who promotes securities in public to disclose if they have received compensation, whether directly or indirectly, in order to protect investors and ensure transparency and fairness in the market.
But what Aiying wants to say is: in the case of no compensation, if the influencers do not accept any form of compensation, but only invest themselves and promote out of personal interest or belief, they generally do not need to disclose their financial relationship with the project. At this time, their promotion behavior is more regarded as personal opinion or recommendation. (This is also the reason why Trump and Musk's projects have not been targeted yet, which will be mentioned later).
2. Market manipulation
1. Market manipulation is illegal under the Securities Act and the Commodity Exchange Act
Securities Law: If cryptocurrencies are deemed securities, the SEC will have regulatory authority. If they are not deemed securities, it may be difficult for the SEC to take direct action against market manipulation.
Commodities Act: Even if they are not designated as securities, cryptocurrencies may still be considered commodities, and the CFTC can investigate market manipulation under the Commodity Exchange Act.
2. Whether it constitutes market manipulation requires consideration of the following factors:
Intent: If Musk and Trump’s actions are deemed to be intended to profit from influencing prices through misleading information or manipulative market behavior, then it may constitute market manipulation.
Actual gains: If it can be proven that Musk and Trump gained financial benefits from these actions, regulators may investigate further.
Related crypto projects in which Trump and other KOLs are directly or indirectly involved
1. Trump-related projects
1. The situation of TrumpCoin
This cryptocurrency was created to support Trump and his agenda, but it has not been officially endorsed by Trump himself or his team. TrumpCoin was launched in 2016 to support Trump's policies and initiatives. The Trump family has even publicly stated that they have nothing to do with TrumpCoin and threatened legal action.
2. Issuance and promotion of Trump NFT
Trump is indeed involved in the issuance and promotion of NFT (Non-Fungible Token). Here are a few key points:
Trump Digital Trading Cards: Since December 2022, Trump has released several series of NFTs that leverage his name and image, including a “Mugshot Edition” that sold out shortly after its initial release.
Profits and Financial Disclosure: According to the financial disclosure documents of the U.S. Office of Government Ethics, Trump has made considerable profits from these NFT sales, earning between $100,000 and $1 million through the NFT projects launched by CIC Digital. This is in place in combination with the requirements of the Securities Act and the Investment Advisers Act, and is also exempt from SEC review.
2. Other KOL Cases:
In recent years, the SEC (U.S. Securities and Exchange Commission) has taken multiple enforcement actions against celebrities who failed to disclose paid promotion of cryptocurrencies, and there have been multiple cases of judgment and settlement. Here are some specific cases compiled by Aiying:
1. Kim Kardashian
Kim Kardashian was charged by the SEC with violating Section 17(b) of the Securities Act for failing to disclose compensation she received when promoting the EthereumMax (EMAX) token. She agreed to pay a $1.26 million fine and restitution and promised not to promote any crypto asset securities for the next three years.
2. Floyd Mayweather and DJ Khaled
In 2018, Floyd Mayweather and DJ Khaled were charged by the SEC for failing to disclose compensation they received for promoting initial coin offerings (ICOs). Mayweather was fined more than $600,000 and DJ Khaled was fined more than $150,000.
3. Paul Pierce
Former NBA player Paul Pierce was charged by the SEC for failing to disclose compensation when promoting the EMAX token on Twitter. He was fined $1.4 million and agreed not to promote any crypto-asset securities for the next three years.
4. Justin Sun and eight celebrities
In 2023, the SEC filed a lawsuit against Tron founder Justin Sun and his company, as well as eight celebrities including Lindsay Lohan, Jake Paul, Soulja Boy, Akon, etc., alleging that they failed to disclose the compensation they received when promoting Tronix (TRX) and BitTorrent (BTT) tokens. Most of these celebrities agreed to pay a total of more than $400,000 in fines to settle these charges.
Aiying's comment: The SEC has taken tough enforcement measures against celebrities who failed to disclose paid promotions of cryptocurrencies. Celebrities and influencers must disclose their paid relationships when promoting cryptocurrencies to avoid legal risks.
