Celebrities Are Facing Legal Ramifications From NFT Endorsements

Celebs, like everyone else, just want to be in on what’s cool and new. In the last five to six years, that’s been cryptocurrency and NFTs. It’s a new frontier in celebrity shilling for products, but it’s not as straightforward as just holding up a favorite can of beer and saying it tastes great. The blockchain holds risks for everyone, and when you’re famous, the costs of taking those risks could get out of hand very quickly.

The List of 17

Seventeen famous names found that out in early August 2022. That’s when consumer watchdog group Truth in Advertising (TINA) sent letters to a diverse group that included A-listers like DJ Khaled, Eminem, Gwyneth Paltrow, and Tom Brady. Each letter was tailored to its recipient but included the following statement:

While TINA.org is not currently addressing a specific deceptive marketing issue pertaining to such posts, we have found that celebrity NFT promotions is an area rife with deception, including, but not limited to, a failure to clearly and conspicuously disclose the promoter’s material connection to the endorsed NFT company, as well as the omission of other material information, such as the risks associated with investing in such speculative digital assets, the financial harm that can result from such investments, and the personal benefit(s) the promoter may gain by virtue of the promotion(s).

The letter advised celebs that they were required to disclose a financial connection to whatever NFT collection they promoted and then singled out Justin Bieber and Reese Witherspoon. TINA was onto the connection between the former’s inBetweeners NFTs and the latter’s connection with World of Women NFTs.

The letter sent to Reese Witherspoon was blunt. It linked tweets the actor had posted about World of Women NFTs in 2021 and 2022 and stated that the Federal Trade Commission (FTC) "requires that social media influencers such as Ms. Witherspoon clearly and conspicuously disclose when they have any financial, personal, or other material relationship with a brand.”

Witherspoon, the letter read, “markets an NFT company (in which she has a personal stake) without ever disclosing the risks associated with investing in such speculative digital products, and the financial harm that can result from such investments.” That lack of transparency, TINA’s letter concluded, “is particularly important in light of Ms. Witherspoon’s widespread popularity among fans of varying degrees of financial experience.”

As an August 8 BuzzFeed report about the notifications pointed out, even celebrities who buy a Bored Ape out of pocket are “essentially pumping the value of their own investment” when they do anything to promote the collection, like posting an image on Instagram.

TINA’s warning letters were an important heads up for stars who don’t want to run afoul of the Federal Trade Commission. TINA’s warnings have often preceded the FTC filing legal action, known as a “Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct around Endorsements and Testimonials.” Most celebrities would rather not get hit with the kinds of substantial fines the government can levy for unfair or deceptive practices.

Seth Green’s BAYC Saga

A few months before the bulk of TINA’s letters went out, actor, writer, and ‘Robot Chicken” co-creator Seth Green discovered another danger of that blockchain life: There are legal gray zones galore.

Green had purchased a few Bored Apes (BAYC), including #8398, which he dubbed Fred Simian. Not long after he went on his shopping spree, Green fell for an old-fashioned phishing scam—he responded to a message that ultimately prompted him to enter his OpenSea login information, and in short order, some of his most valuable NFTs were transferred to the wallet of one “Mr Cheese.”

The actor was desperate to get his property back, tracking down Mr Cheese’s likely Twitter account and posting public messages asking for Fred’s return. It turned out that Green wasn’t just running a Twitter account for Fred Simian—by acquiring the copyright to Fred with his purchase, Green was building an entire mixed animation and reality sitcom, “White Horse Tavern,” around the character.

White Horse Tavern @Veecon with Seth Green and Garyvee

In the end, blockchain records indicate an account associated with Green’s known buying history was used to repurchase Fred Simian, this time for nearly $300,000.

Had Green taken the case to court, it wouldn’t have been easy for him. The blockchain was designed for anonymous transactions, and it can be hard enough for law enforcement to investigate crimes online in the first place—add in cryptocurrency security and the result can be a bit of a nightmare even for seasoned online sleuths.

Seth Green’s Bored Ape ordeal was perhaps a bit more straightforward than concerns over celebrity disclosures putting the likes of Gywneth Paltrow and Jimmy Fallon in the FTC’s crosshairs. Non-famous people buy NFTs and trade crypto daily, frequently confronting phishing attacks. What happened to him happens to a lot of consumers—the FTC reported in June this year that scammers had taken in a billion dollars since January alone.

Talking About Your Reputation

TINA’s warning letters and Seth Green’s adventures in BAYC-land are just two aspects of cryptocurrency complexity. Famous folks face other challenges when they get into crypto in some form—challenges that have more to do with PR than the law. During Super Bowl LVI in February 2022, Matt Damon and Larry David appeared in high-profile, expensive commercials for the crypto.com and FTX exchanges.

Both spots received plenty of notice on social media at the time, but in June 2022 crypto winter began. Damon’s and David’s became fodder for bitter jokes from those losing money in the tanking market and sources of schadenfreude for crypto skeptics.

The ads seemed to vanish from regular rotation pretty quickly, so it’s likely the reputational damage to either star was minimal in the long run—and after all, Matt Damon and Larry David were obviously paid spokespeople.

In a recent article for Law 360, attorneys Amy Mudge and Lauren Bass of national law firm Baker & Hostetler LLP discussed Truth in Advertising’s letters to celebrities about their lack of disclosures. Mudge and Bass acknowledged that while TINA’s letters reflected frustration with “the lack of aggressive enforcement of individual influencers,” the FTC is likely taking the right approach to these issues on its own. The government agency has published guidelines for influencers in plain, non-legalistic language and has generally taken an educational approach rather than aggressively issuing warnings.

Mudge and Bass write that the FTC’s “focus on education rather than reprimand is arguably a smarter use of the agency's limited resources. This approach has helped to increase awareness of responsibilities as well as overall compliance by brand marketers, influencers and even social media platforms.”

Still, the attorneys have some free advice for celebs still interested in an NFT collab.

“Regardless of the product or medium in which such endorsement takes place,” Mudge and Bass write, “remember to follow federal guidelines regarding endorsements and to clearly and conspicuously disclose the relationship of the parties along with the potential volatility of any digital asset investment.”

In response to dot.LA's request for additional comment, Amy Mudge says, "There has always been a focus on celebrities promoting products for companies they have a financial relationship with. The FTC and the states have focused on the importance of making clear when you are paid by a brand to promote."

Mudge, who also co-leads Baker & Hostetler's advertising, marketing, and digital media team, goes on to admit that "it is sometimes hard to see the harm from" celebrities saying they use a particular product without disclosing a profit-making relationship with a brand. "But if celebrities are paid to promote crypto investments or buying NFTs," Mudge says, "the financial outlay can be large and the short and long-term value uncertain. So, we can expect to see more enforcement activity and also litigation in such cases."

So—be clear when you get paid to tell others to invest in new, unfamiliar assets. The world of crypto is shady enough as it is.