The complaint further alleges that Defendant Robert applied for, but did not secure, a $100,000 business loan with a lender in an attempt to cover the shortfall in January of 2021. Thereafter, the Scheme collapsed in early 2021.The complaint seeks permanent injunctive relief and disgorgement of ill-gotten gains and asserts seven claims of relief against Defendants for violations of: (i) Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. § 77e; (ii) Section 17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a)(1); (iii) Section 17(a)(2) of the Securities Act, 15 U.S.C. § 77q(a)(2); (iv) Section 17(a)(3) of the Securities Act, 15 U.S.C. § 77q(a)(3); (v) Section 10(b) and Rule 10b-5(a) of the Securities Exchange Act, 15 U.S.C. § 78j(b); (vi) Section 10(b) and Rule 10b-5(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b); 10b-5(b); and (vii) Section 10(b) and Rule 10b-5(c) of the Securities Exchange Act, 15 U.S.C. § 78j(b); 10b-5(c).

Accordingly, participants in both the securities and commodities markets, and entities otherwise subject to SEC, CFTC, or DOJ regulation, should take steps to ensure that they have proper training and systems in place to enable proper prevention and detection of conduct that these regulators may perceive as spoofing or otherwise manipulative.[1] Complaint, SEC v. Chen, No. 19-cv-12127, ECF No. 1, at ¶ 5 (D. Mass. Oct. 15, 2019) (hereinafter “Chen Complaint”) (alleging violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77q(a)(1), (3), and Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78i(a)(2), 78j(b), and Rules 10b-5(a) and (c) thereunder, 17 C.F.R. §§ 240.10b-5(a), (c)); seealso Press Release, SEC, SEC Charges 18 Traders in $31 Million Stock Manipulation Scheme, Litigation Release No. 24,648 (Oct. 21, 2019), https://www.sec.gov/litigation/litreleases/2019/lr24648.htm (hereinafter “SEC Press Release”). [2]Chen Complaint ¶¶ 1, 46; SEC Press Release.[3] Complaint, United States v. Wang, No. 19-mj-6485, ECF No. 1 (D. Mass. Oct. 14, 2019); see Affidavit in Support of Criminal Complaint, Wang, No. 19-mj-6485, ECF No. 1-4, ¶ 3 (together hereinafter “Wang Complaint”) (charging criminal conspiracy to commit securities fraud, in violation of 18 U.S.C. § 371); see also Press Release, DOJ, Two Chinese Nationals Charged with Stock Spoofing Conspiracy (Oct. 15, 2019), https://www.justice.gov/usao-ma/pr/two-chinese-nationals-charged-stock-spoofing-conspiracy. [4]Chen Com

Moreover, because the General Fund is used by rating and bond insurers to assess the financial condition of municipalities, the SEC alleged the city benefitted from the misrepresentations by fraudulently inducing a higher rating that allowed it to receive better interest rates and more favorable terms on the bonds it issued. Notably, when the misrepresented transfers were identified and reversed from the General Fund back to the Capital Projects Funds, the rating agencies cited this as a reason for downgrading the city’s bond offerings.The Verdict The SEC brought claims against the city and Boudreaux under Section 17(a)(1) of the Securities Act (15 U.S.C. § 77q(a)(1)); Section 17(a)(2) and (3) of the Securities Act (15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)); Fraud in violation of Section 10(b) of the Exchange Act (15 U.S.C. § 78j(b)) and Rule 10b-5(a), (b), and (c) (17 C.F.R. § 240.10b-5). The SEC also brought a claim against Boudreaux for aiding and abetting the city’s violations of Section 10(b) of the Exchange Act and Rule 10b-5.

ion is required by Section 17(b). Until further clarity is given by the SEC in connection with digital assets as securities, it is likely that there will be a lull in influencer-based marketing for these products due to the risk of enforcement from the SEC. Influencers’ handlers and attorneys should conduct proper due diligence before signing up their clients for digital asset promotional activities, as their clients’ status may have unintended consequences.www.ftc.gov/system/files/documents/plain-language/1001a-influencer-guide-508_1.pdfwww.forbes.com/sites/brettknight/2022/05/11/the-worlds-10-highest-paid-athletes-2022/?sh=791bcec51f6cNFTs: New Frontiers for Trademarks, Global IP & Technology Law Blog, accessed at www.iptechblog.comTokenization and the Law: Legal Issues with NFTs, The National Law Review, accessed atwww.natlawreview.com/article/tokenization-and-law-legal-issues-nfts Initial coin offering.www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos 15 U.S.C.A. § 77q(b) (West)(Securities Act § 17(b))www.sec.gov/news/press-release/2022-183Id.www.sec.gov/news/press-release/2023-59www.sec.gov/news/press-release/2023-34https://www.documentcloud.org/documents/23323956-garrison-v-bankman-fried-class-action-complaint Fla. Stat. Ann. § 517.211 (West) Fla. Stat. Ann. § 501.204 (West)[View source.]

ts willingness to do so with this recent action against Mr. Sun's companies. Accordingly, US public companies should take heed of these actions both due to the reputational risks associated with actions against celebrities who have promoted their securities and now the heightened risk of aiding and abetting charges.Zeinab Khalil (White & Case, Law Clerk, New York) contributed to the development of this publication.1 The SEC also charged Mr. Sun and his wholly-owned companies with violating the registration and anti-fraud provisions of the Securities Act of 1933, as well as the anti-manipulation and anti-fraud provisions of the Securities Exchange Act of 1934. 2 See e.g., In re Galena Biopharma Derivative Litig., No. 3:14-cv-382-SI LEAD, 2014 U.S. Dist. LEXIS 150986, at *36-37 (D. Or. Oct. 22, 2014) (explaining that Section 17(b) of the Securities Act prohibits disseminating information about a security without disclosing any consideration to be received in connection with same). 3 See 15 U.S.C.S. § 77q (b). 4 SEC v. Gorsek, 222 F. Supp. 2d 1099, 1105 (C.D. Ill. Apr. 20, 2001) (finding that there was no genuine issue of material fact whether certain defendants violated Section 17(b) because of their failure to disclose the amount and type of consideration received for the relevant communications). 5 Id. 6 SEC v. Liberty Capital Group Inc., 75 F. Supp. 2d 1160, 1163 (W.D. Wash. Feb. 18, 1999) (finding that unlike Section 17(a)(1) which prohibits fraud in the sale of securities and implies an element of intent, Section 17(b) does not state or require an element of intent). 7 See 15 U.S.C.S. § 78t (e). 8 According to the SEC's complaint and relevant SEC orders, TRX and BTT were offered and sold as investment contracts, making them subject to the federal securities laws. 9 Press Release, U.S. SEC. & EXCH. COMM’N, SEC Charges Crypto Entrepreneur Justin Sun and his Companies for Fraud and Other Securities Law Violations (Mar. 22, 2023), https://www.sec.gov/news/press-release/2023-59. 10 See In

comparison, the statutory maximum for insider trading penalties under Section 21A of the Exchange Act of 1934 is capped at a 3:1 ratio of penalties to ill-gotten gains (or losses avoided).Given the aggressive posture taken by the SEC toward policing promotion and sale activities around crypto and NFT assets, athletes and celebrities should exercise caution when an endorsement opportunity arises, as it just may turn out to be more trouble than it is worth in endorsement dollars.NotesId.United States v. Amick, 439 F.2d 351, 365 (7th Cir. 1971) (citing Committee on Interstate and Foreign Commerce, H.R. Rep. No. 85, 73d Cong., 1st Sess., at 24 (1933)). See, e.g., In re Galectin Therapeutics, Inc. Securities Litigation, 843 F.3d 1257, 1272-73 (11th Cir. 2016); Garvey v. Arkoosh, 354 F.Supp.2d 73, 83 (D. Mass. 2005). We note that more generalized disclosure obligations under the federal securities laws (such as those under Exchange Rules 10b-5 or 12b-20) may necessitate such disclosure. See 15 U.S.C. § 77q(b).Sec. & Exch. Comm'n v. Liberty Cap. Grp., Inc., 75 F. Supp. 2d 1160, 1163 (W.D. Wash. 1999) ("In short, the plain meaning of § 17(b) excludes an element of intent, and none of the Supreme Court's reasons for reading that element into § 17(a)(1) in Aaron apply here."). Brady Dale, ICO Mania Revisted: The Investors and Token Issuers Who Made Good, CoinDesk (Aug. 9, 2021). Gary Gensler, "Kennedy and Crypto," SEC (Sept. 8, 2022). In fact, the SEC's recent Safeguarding Rule proposal reinforces the agency's current view that most crypto assets are securities. Several celebrities and athletes have promoted EtherMax and its token EMAX, including Kim Kardashian, Paul Pierce and Floyd Mayweather. Now, Mayweather, Kardashian, Pierce and others are named defendants in private securities litigation brought by EtherMax investors in California's Central District. The case is in its early days, and a motion to dismiss is pending. In re EthereumMax Investor Litigation, No. 22-cv-00163 (C.D. Cal. Feb.

3 (emphasis removed).Id. (Court's emphasis).See generally SEC v. Lemelson, 596 F. Supp. 3d 227 (D. Mass. 2022). Notably, the district court did not order disgorgement in the matter, finding that the misconduct was not causally connected to any ill-gotten gains. Id. at 228.Lemelson, 2023 WL 21546 at *4 (1st Cir.).Lemelson, 2023 WL 21546 at *4 (1st Cir.).Id. at *5 (quoting McKee v. Cosby, 874 F.3d 54, 61 (1st Cir. 2017)).Id.Id. (quoting Constr. Indus. & Laborers Joint Pension Tr. v. Carbonite, Inc., 22 F. 4th 1, 7 (1st Cir. 2021)).Id. at *5 (quoting Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175, 183 (2015)).Id. at *5 (emphasis added).Id.Id. (citations removed).Id. at *5-6 (quoting Basic Inc. v. Levinson, 485 U.S. 224, 231-232 (1988)).Id. at *7.Id.Id.Id. at *8.Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n of N.Y., 447 U.S. 557 (1980).Id. at 566 (emphasis added).Id. at *7 n.9.See Securities Act of 1933, ch. 38, 48 Stat. 74 (codified as amended at 15 U.S.C.A. Section 77q). Short Position and Short Activity Reporting by Institutional Investment Managers, (Release No. 34-94313; File No. S7-08-22), Feb. 25, 2022; see also Magee, Mascianica & Porter, "Something We Can All Agree On? SEC Unanimously Approves Proposed Short-Seller Disclosure Rules," Holland & Knight SECond Opinions Blog (Mar. 4, 2022).

st proceedings against Kim Kardashian and detailing Kardashian’s violation of Section 17(b) of the Securities Act (see Administrative Proceeding File No. 3-21197). Kardashian came under scrutiny from the SEC after she promoted EthereumMax Tokens (Emax Tokens) via her Instagram account in June of 2021, near the height of the cryptocurrency market, without making the proper disclosures. The SEC had previously fined boxer Floyd Mayweather and rapper DJ Khaled in 2018 for similar violations of the SEC’s “anti-touting” rules.Kardashian was paid approximately $250,000 in exchange for her social media promotion of the Emax Tokens to her ~225 million Instagram followers. The price of Emax Tokens skyrocketed after her post, and then just as quickly crashed. The key issue here was that the SEC determined that the Emax Tokens constituted securities, and that Kardashian, in her promotion of the tokens, failed to disclose details regarding her compensation from EthereumMax, as required by law (see 15 U.S.C. § 77q (b)). In settlement of the matter, the SEC ordered Kardashian to pay a fine of $1 million and disgorgement of the $250,000 fee she had been paid. In addition, Kardashian agreed that she would forgo receiving any compensation or consideration for promotion of any crypto asset security for three years, and would continue her cooperation with the SEC. Her Instagram post (see image below) did include a disclaimer stating that she was not giving financial advice but simply sharing information her “friends” told her, as well as the hashtag “#ad” (commonly used by influencers in order to satisfy the FTC’s advertising disclosure requirements); however, the disclaimer and hashtag did not meet the requirements of the anti-touting rules, which require, according to the SEC, that: “[a]ny celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion,” and that the required compens

X tokens are available for public trading on cryptocurrency exchanges, and the SEC found that purchasers would have had a reasonable expectation of profits from their investment in EMAX tokens as a result of the efforts of the company behind the token.Kardashian’s social media post included an introductory video stating she had a “big announcement,” followed by a post that read:Are you guys into crypto???This is not financial advice but sharing what my friends just told me about the Ethereum Max token!A few minutes ago Ethereum Max burned 400 trillion tokens—literally 50% of their admin wallet, giving back to the entire E-Max Community#EMAX #DISRUPTHISTORY #ETHEREUMMAX #WTFEMAX #GIOPEMAX @ETHEREUMMAX #ADSwipe up to join the E-Max CommunitySection 17(b) of the Securities Act makes it unlawful for anyone to publish an advertisement describing a security “for a consideration . . . without fully disclosing the receipt, whether past or prospective, of such consideration and the amount of.” 15 U.S.C. § 77q(b). Furthermore, the SEC previously issued a statement clarifying that “[a]ny celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.”In addition to a three-year ban on promoting crypto asset securities, the order requires Kardashian to disgorge the $250,000 she received for the promotion, prejudgment interest, and a civil penalty of $1,000,000. The SEC order doesn’t resolve all of Kardashian’s legal troubles in connection with her promotion of the EMAX tokens. In January, a class action lawsuit was filed against Kardashian and a few other celebrities for their role in promoting the EMAX tokens, which sharply lost their value shortly after the celebrities’ promotional efforts.As the FTC moves forward with updating its Endorsement and Testimonials Guides, the Kardashian case serves as a reminder to endorsers and influencers that, regardless of the product being

Specifically, the SEC avers bank records reveal Ponzi-like transactions in which Defendant accounts paid earlier investors immediately upon receiving new investor money and used investor funds to pay expenses on unrelated real estate projects.The complaint seeks permanent injunctive relief and disgorgement of ill-gotten gains and asserts three claims of relief against Defendants for violations of (i) Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b); (ii) Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a); and (iii) Sections 5(a) and (c) of the Securities Act, 15 U.S.C. § 77(e)(a) & (c).[View source.]