Will the Latest Move in the FTX Lawsuit Spark an Anti-Regulatory Backlash? 

Lawyers for plaintiffs in the FTX lawsuit have just served NBA star Shaquille O’Neal with papers naming him as a defendant. However, this latest development has drawn mixed reactions.

In recent years, celebrity endorsements have become a popular marketing strategy among brands to increase their visibility and credibility. But with the rise of social media influencers and the growing importance of transparency in advertising, there have been cases where brands and their spokespersons have faced legal action for not disclosing paid endorsements.

The Federal Trade Commission (FTC) has issued guidelines for brands and influencers on disclosing sponsored content. Some litigious actions, taken by consumers or competitors against a brand’s spokesperson, are overreach designed to intimidate promotions. Which are normal and unactionable for most financial products and services.

Celebs With a Mass Following Build Traction

The use of celebrity endorsements can be highly effective in increasing brand awareness and sales. However, when a celebrity endorses a product or service without disclosing his or her relationship with the brand, advertising is misleading and deceptive. The FTC requires that any endorsement made in exchange for compensation be disclosed to the public. Whether on social media or in traditional advertising.

Failure to disclose can result in legal action against the brand and the spokesperson. While these guidelines are essential in maintaining transparency and honesty in advertising, some legal actions against a spokesperson may be seen as an overreach.

In most cases, litigation overreach occurs when legal action targets practices considered normal and unactionable. In the case of paid endorsements, some lawsuits against a spokesperson are an attempt to chill. Further, such intimidation does not go over well in the advertising industry.

Holding brands and their spokespersons accountable for transparent advertising practices is vital. Yet legal action against a spokesperson for a paid endorsement can be seen as overreach.

But will that be the case with the ongoing FTX promotion fiasco?

What Is The FTX Connection?

The lawsuit against defunct exchange FTX celebrity promoters for promoting cryptocurrencies that may be unregistered securities is ongoing. Adam Moskowitz, the lawyer handling a class action lawsuit against FTX promoters, is seeking $5 billion in damages. The litigation targets various high-profile influencers.

It is important to note that in the United States, the Securities and Exchange Commission (SEC) regulates the sale of securities. It requires companies that issue securities to register with the agency or get an exemption.

While a number of promoters were served as part of the litigation, NBA superstar Shaquille O’Neal is feeling the heat. Lawyers for plaintiffs in the FTX lawsuit served the former NBA player with papers naming him a defendant. By its own admission, the Moskowitz law firm, representing investors in the fallen exchange, spent many weeks harassing O’Neal. Whom it accused of “running from us for months,” as the firm tried to serve the papers.

Leading the Lawsuit

An Oklahoma native filed the class-action lawsuit: Edwin Garrison, an FTX customer. His famed attorneys are Adam Moskowitz and David Boies. The suit names several high-profile celebrities for endorsing FTX, such as Tom Brady, Steph Curry, Larry David, and more.

O’Neal is the only one among several celebrities roped in by the Sam Bankman-Fried-led platform. Nonetheless, the suit emphasizes that O’Neal stands out among the “FTX celebrities,” referring those who endorsed FTX.

The law firm has stated that O’Neal has been “running” from them “for three months” and should show courtesy and honor by allowing its process servers to deliver the legal complaint so that he can defend his “actions in this matter.“ In fact, lawyers tried to reach O’Neal by leaving comments on his social media platforms, including Twitter and Instagram. Earlier this month, a judge denied a motion to allow O’Neal to be served electronically.

Clarifying the Motive

In a recent interview, O’Neal said that FTX paid him to appear in a commercial and he did not break any law. Herein, O’Neal stated that he was “just a paid spokesperson” and had no involvement in the company’s operations or financial decisions. O’Neal acknowledged that he knew the risks of investing in cryptocurrencies but believed that FTX was a reputable company.

“A lot of people think I’m involved, but I was just a paid spokesperson for a commercial,” O’Neal said.

While this may be the case, the plaintiff clearly disagrees. Attorney Adam Moskowitz, replying to BeInCrypto’s request for comment, stated:

“You promote an unregistered security for financial benefit; you are liable for all the rescissory damages.”

Overall, the FTX collapse and the involvement of celebrity promoters such as O’Neal have raised questions about the regulation of cryptocurrencies and the role of celebrity endorsements in the industry. While celebrities can bring attention and credibility to a brand or product, they also carry a significant risk if the company engages in fraudulent or illegal activities.

Legal experts have voiced frustrations around the efforts to pin O’Neal down. Daniel Dubin, an attorney at Alston & Bird, told BeInCrypto:

“This is a volatile area, and people need to do their own research. [This ruling] sets the right tone for this type of litigation. You don’t want to excuse someone for investing in something they should’ve known to be a bad investment.”

Celebrities Have Their Say

Amid the chaos, defendants voiced their opinions in an April 18 report. Celebrity promoters for FTX argued that investors with accounts closed or restricted by the exchange do not have the legal standing to sue. But promoters Shaquille O’Neal, Kevin Durant, and Tom Brady are the target of investors who claim they suffered financial losses due to FTX closing or restricting their accounts.

FTX’s celebrity promoters argued, in their filing, that the investors’ claims are based on contractual and regulatory issues. Only the exchange and regulators can address this. The promoters stated that they had no involvement in the operational or regulatory decisions of FTX. Therefore, they are not liable for any losses suffered by investors. They promoted the exchange and its products in return for financial rewards. Further arguing in their filing that they not involved in any wrongdoing and had no control over the exchange’s operations. They contend that the investors’ claims against them are meritless and the judge should dismiss them.

What Is At Stake Here?

On March 9, United States District Judge Kevin Moore considered dismissing both O’Neal and tennis athlete Naomi Osaki from the lawsuit after pointing out the unclear basis for their inclusion. A paperless order issued by Moore gave FTX customers until December 2023 to justify the inclusion in the lawsuit.

In conclusion, it is essential to maintain transparency and honesty in advertising practices. But some legal actions taken against a brand’s spokesperson are overreach, designed to intimidate promotions considered normal and unactionable for most financial products and services.

Litigious actions to chill and intimidate promotional practices can have a chilling effect on creativity and innovation in the advertising industry. Hence, achieving transparency in advertising while avoiding litigious overreach is crucial.

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