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Crypto Law/Level V · Builders and launchers/5.3 Promotion and liability/Lesson 1

Paid promotion and the disclosure rule

Why being paid to talk up a token is lawful only when the payment is disclosed, and how the SEC, FTC, EU and UK each enforce that idea.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Promote only unpaid, as the builder or a fan. Section 17(b) and the FTC disclosure duty apply only when someone gives you something of value, so there is nothing to disclose.
  2. If paid, state in the post who paid and how much, in cash or tokens, which is free. Section 17(b) requires the amount for securities, and doing so for every token avoids having to decide whether it is a security.
  3. Under the FTC’s 2023 Endorsement Guides (16 CFR 255.5), disclose clearly in the post itself. A platform’s built-in sponsorship tag alone may not be enough, and free or discounted tokens count as payment.
  4. Exclude UK audiences rather than paying an authorised firm to approve the promotion, since unapproved crypto promotion there is a crime under FSMA section 21. Influencers are within FCA guidance FG24/1.
  5. In the EU, label paid content as marketing and keep it fair, clear and not misleading (MiCA Article 7(1)). Keep a record of every payment received for each post.

MaterialsSection 17(b) of the Securities Act of 1933 (15 U.S.C. 77q(b)), the anti-touting provisionThe FTC’s Endorsement Guides, 16 CFR Part 255, especially section 255.5 on material connectionsThe SEC press releases on Kim Kardashian (3 October 2022) and on Justin Sun and eight celebrities (22 March 2023)A real paid post about a token, with its disclosure line, for comparison

Wonder

  1. Is it illegal to be paid to promote a token, or only to hide the payment?
  2. Does the disclosure have to say how much was paid, or just that the post is sponsored?
  3. If a token is not a security, does any disclosure rule still apply?

Explore

  1. Section 17(b) of the US Securities Act of 1933, the ‘anti-touting’ rule, makes it unlawful to publicise or describe a security for consideration ‘received or to be received, directly or indirectly’ from an issuer, underwriter or dealer, without fully disclosing the receipt ‘and the amount thereof’. Two points matter for builders. It does not ban paid promotion; it requires disclosure, including the amount. And it applies only if the token is a security, which depends on the Howey analysis (lesson 3.1.1) and, for meme coins, on the SEC’s 2025 and 2026 positions (lesson 3.2.3).
  2. On 1 November 2017 the SEC warned that celebrity endorsements of initial coin offerings ‘may appear unbiased’ but may be paid promotions, and that promoters who do not disclose payment risk anti-touting and anti-fraud liability. On 29 November 2018 it settled with Floyd Mayweather Jr. and DJ Khaled over Centra Tech’s offering. Mayweather had received $100,000 from Centra and $200,000 from two other offerings; he paid $300,000 disgorgement, a $300,000 penalty and $14,775 interest and accepted a three-year promotion ban. Khaled paid $50,000, a $100,000 penalty and $2,725 interest, with a two-year ban.
  3. Later cases show how payment in tokens and large audiences raise the stakes. On 27 February 2020 the actor Steven Seagal settled over the Bitcoiin2Gen offering: he had been promised $250,000 in cash and $750,000 worth of its tokens, and he paid $157,000 disgorgement plus a $157,000 penalty. On 3 October 2022 Kim Kardashian settled over an Instagram post about EthereumMax’s EMAX token, for which she had been paid $250,000. She paid $1.26 million in total, including a $1 million penalty, and agreed not to promote crypto asset securities for three years.
  4. Issuers who arrange hidden promotion can be charged too. On 22 March 2023 the SEC sued Justin Sun and his companies over the TRX and BTT tokens, alleging unregistered sales, wash trading and an undisclosed paid-celebrity campaign. It charged eight celebrities, including Lindsay Lohan, Jake Paul, Lil Yachty and Ne-Yo, with touting without disclosure. Six of them settled, paying more than $400,000 in total; Soulja Boy and Austin Mahone did not settle. The SEC’s enforcement director said in 2022 that promoters must disclose ‘the nature, source, and amount’ of their compensation.
  5. Outside securities law, the Federal Trade Commission applies the FTC Act’s ban on ‘unfair or deceptive acts or practices’ (15 U.S.C. 45). Its Endorsement Guides, revised on 29 June 2023, say that a connection between endorser and seller that might affect the endorsement’s credibility, and that the audience would not expect, must be disclosed ‘clearly and conspicuously’. Money, free or discounted products and early access all count. The FTC added that a platform’s built-in disclosure tool might not be enough. The Guides are not binding rules, but they show how the FTC reads the Act.
  6. Other places have their own versions. In the EU, MiCA Article 7(1) requires marketing communications for a token offer to be ‘clearly identifiable as such’ and ‘fair, clear and not misleading’. In the UK, crypto promotions have been inside the financial promotion regime since 8 October 2023: a promotion must be made or approved by an authorised firm or fit an exemption, and breaching section 21 of the Financial Services and Markets Act 2000 is a crime carrying up to two years in prison on indictment. A practical check: for every paid post, record who paid, what was paid, and whether the post said both.

Key facts

  • Section 17(b) of the Securities Act requires anyone paid to describe a security to disclose the payment and its amount.
  • On 29 November 2018 the SEC settled ICO-touting charges with Floyd Mayweather Jr. and DJ Khaled over undisclosed payments, including from Centra Tech.
  • Kim Kardashian agreed on 3 October 2022 to pay $1.26 million to settle SEC charges over an undisclosed $250,000 payment for promoting EMAX tokens.
  • On 22 March 2023 the SEC charged eight celebrities with touting TRX and/or BTT without disclosing payment; six settled for more than $400,000 combined.
  • The FTC’s revised Endorsement Guides of 29 June 2023 require clear and conspicuous disclosure of unexpected material connections, including free or discounted products.
  • The UK brought cryptoasset promotions into its financial promotion regime on 8 October 2023, and unlawful promotion under section 21 FSMA is a criminal offence.

Exercise nine, six, three, one

9CollectList up to 9 paid or possibly paid posts about tokens that you have seen or made, noting the platform and any disclosure wording (some lists are shorter).
6ClusterSort them into 6 groups: amount disclosed, payment disclosed without amount, platform tag only, vague hint, no disclosure, and unclear whether paid.
3DistillReduce the 6 groups to 3: disclosures that would satisfy section 17(b), disclosures that might satisfy only the FTC standard, and posts with no adequate disclosure.
1CrystallizeWrite 1 sentence explaining why a disclosure that a post is sponsored may still fall short when the token is a security.

Fact check

Dates, figures and claims checked against the published sources listed below.

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