Celebrities diving into the world of cryptocurrency by launching and promoting their own tokens might be setting themselves up for legal trouble. According to legal experts, these actions are likely to attract the scrutiny of the United States Securities and Exchange Commission (SEC). High-profile figures like Caitlyn Jenner, Iggy Azalea, and Jason Derulo have recently introduced their own memecoins on the Solana blockchain. However, this move could be seen as a violation of securities laws, potentially leading to significant penalties. "Nothing gets the SEC to act faster than shilling a memecoin," warns David Chung, founding director of Creo Legal.

Celebrity Crypto Tokens and SEC Scrutiny

U.S.-based public figures, including Caitlyn Jenner, Iggy Azalea (real name Amethyst Kelly), Jason Derulo (real name Jason Desrouleaux), and many others, have launched and promoted crypto tokens using their likeness since late May. These actions have raised red flags among legal experts who believe that these celebrities might be breaking securities laws.

“Nothing gets the SEC to act faster than shilling a memecoin,” David Chung told Cointelegraph. Chung commented that Jenner — the first to get attention for her token — is “painting a target on her back.” He added, “The SEC could potentially go after her for selling unregistered securities without an appropriate license.”

Law firm Clyde and Co partner Liam Hennessy agreed, telling Cointelegraph that celebrities “had a bad run in the last bull run for unlawfully touting crypto without disclosing commissions” — noting that Kim Kardashian forked over $1.26 million for pushing EthereumMax (EMAX). Jenner did not respond to a request for comment sent via her website.

The SEC’s Stance on Crypto Tokens

Hennessy noted that the SEC has claimed “nearly all crypto tokens are securities,” and if it lumps these celebrity tokens into its remit, “the issuer would need to be registered with the SEC.” He warned, “If not, there are appreciable penalties and fines for unlicensed activity. The celebrity may not be the token issuer, which arguably takes them away from what will be the SEC’s first area of concern.”

SEC Chair Gary Gensler in October appeared in a video warning on celebrity-endorsed crypto tokens. The tokens all launched on the Solana-based memecoin creation platform pump.fun. Jenner and Derulo claimed the alleged serial scammer and celebrity memecoin promotor Sahil Arora helped in the creation of their respective Caitlyn Jenner (JENNER) and Jason Derulo (JASON) tokens.

Allegations of Insider Activity

Crypto analytics firm Bubblemaps has claimed each of the tokens — including Azalea’s Mother Iggy (MOTHER) token, which did not involve Arora — has seen onchain insider activity at their launches, with some wallets profiting millions of dollars. Jenner and Derulo have publicly denounced Arora, claiming he scammed them in the creation of their tokens, but Arora told Cointelegraph last month that Derulo’s online spat at him was “all orchestrated.”

A Telegram account controlled by Derulo or a member of his team did not respond to questions sent in a message. Chung said a cryptocurrency’s token release is a “key liability event” for its creators, and “attempting to distance yourself from that event makes sense.” He added, “If it can be shown that a celebrity has coordinated with Arora and staged a pretend public fallout, then this won’t provide any legal protection.”

Legal Ramifications and Market Impact

If the tokens are not legally compliant, then Arora is still “responsible for the token sale even if he is no longer involved with the project.” Arora did not respond to a message sent via Instagram. JENNER, JASON, and MOTHER are all significantly down from their peak highs. MOTHER, the largest by market cap, is down 84.5% from its June 6 high of $0.23, while JENNER and JASON are respectively down 55.5% and nearly 78% from their peaks in early and late June, according to CoinGecko.

MOTHER’s nearly $36 million market cap is down from its peak of nearly $149 million. A Telegram account controlled by Azalea did not respond to questions sent in a message. A person reported to be Azalea’s manager did not respond to a message sent on LinkedIn.

Potential for Class Action Lawsuits

It’s not only the SEC that celebrities have to worry about. Some of the tokens’ investors who may be stung by losses could try to form a class action to sue the celebrities — following a list of stars hit with suits for promoting crypto. “If enough people lose their money, then we could easily see a class action,” Chung added. “The vast majority of memecoin projects end up going to zero, so I’m not expecting anything different here.”

Hennessy said, “There are a host of other requirements around dealing with securities that might make it safer for them to stick with their day job.” The SEC did not respond to a request for comment by the time of publication.

The Broader Implications for the Crypto Industry

The involvement of celebrities in the promotion of crypto tokens is not a new phenomenon. However, the increasing scrutiny from regulatory bodies like the SEC highlights the need for greater transparency and compliance within the industry. The SEC’s actions serve as a reminder that the promotion of financial products, including cryptocurrencies, must adhere to existing securities laws to protect investors and maintain market integrity.

The recent crackdown by the SEC on social media influencers and celebrities promoting cryptocurrencies without proper disclosure is an important step toward protecting investors and promoting transparency in the cryptocurrency space. The SEC has taken action against individuals promoting and endorsing cryptocurrencies without disclosing their financial interests or potential conflicts of interest. This crackdown aims to curb deceptive practices and safeguard investors, but it also has broader implications for recognizing good projects and preventing unethical behavior.

The Role of Influencers in the Crypto Space

When social media influencers promote and endorse certain cryptocurrencies without proper disclosure, it can mislead investors and create a false sense of legitimacy and potential profitability. In many cases, these influencers may have financial arrangements with the projects they promote, such as receiving compensation or being given a significant stake in the project. This behavior can distort the market and direct attention and investment toward projects that may not have strong fundamentals or genuine potential for long-term success.

By cracking down on social media influencers who engage in these deceptive practices, the SEC conveys that such behavior will not be tolerated. This helps prevent investors from falling prey to misleading information and shilled coins, ultimately protecting them from potential financial losses. Some legitimate influencers provide valuable insights, analysis, and education about cryptocurrencies. They may be interested in promoting good projects and helping investors make informed decisions. The crackdown by the SEC should not be seen as a blanket condemnation of all influencers but rather as a necessary measure to address those who engage in deceptive practices.

Promoting Transparency and Accountability

Promoting transparency and holding influencers accountable can create a more level playing field for recognizing good projects. When investors are provided with accurate and unbiased information, they can make informed decisions based on the merits and potential of a project rather than relying on inflated endorsements. While it is true that