Source: AiYing Compliance
With Trump's possible re-election as US President, the future development of the cryptocurrency and NFT markets has attracted widespread attention. During Trump's first term, he impressed the liberalization of the financial market and his supportive policies for enterprises. This time, his return may bring new changes and challenges to the cryptocurrency market. For details, see Aiying's article yesterday ""Gunshots sounded, turning point opened" Trump's love and hate for cryptocurrency review, US crypto regulatory policy may be accelerated".
In recent days, with the release of the news of Trump's election, the cryptocurrency market has experienced a round of increases, and the prices of Bitcoin and other major cryptocurrencies have climbed, reflecting the market's expectations and reactions to future policy changes. This article will explore the compliance issues of Trump's related crypto projects and the case analysis of KOLs and celebrities in promoting cryptocurrency projects.
According to information collected by Aiying, the SEC has been cracking down on such undisclosed celebrity promotions in recent years. KOLs can quickly spread information through social media and help projects attract more investment. In March, Monad Labs completed a huge round of financing with a valuation of up to $3 billion. Venture capital firms such as Paradigm participated. Some KOLs can invest at a price one-fifth lower than this valuation, and these KOL investors can sell within a few months, instead of waiting for years like equity investment. This is a financing method that looks very tempting, but it has also attracted the attention of the SEC.
KOLs mainly involve several regulatory itch points in promoting crypto projects:
First, the SEC's regulations are mainly focused on the Securities Act and the Investment Advisers Act, which require celebrities or influencers who promote securities to disclose any form of compensation to ensure that investors have access to transparent information. These regulations are designed to prevent misleading propaganda and potential fraud.
These compensations can include, but are not limited to, the following forms:
1. Cash Payment
This is the most direct form of compensation, referring to the cash reward that the influencer receives directly.
2. Tokens or Cryptocurrencies
Influencers may receive compensation in the form of tokens or other cryptocurrencies. These tokens can be crypto assets issued by the project party or other forms of digital currency.
3. Equity
Influencers may receive equity in the company or project as compensation. This form of compensation is common in early financing of startups and blockchain projects.
4. Other Forms of Financial Compensation
In addition to direct cash or tokens, compensation can also include any form of financial benefits. For example, free products or services, future revenue sharing, or other forms of financial compensation.
5. Contracts and Agreements
Any form of written contract or agreement that stipulates compensation, whether it is a one-time payment, regular payment, performance bonus, etc., falls within the scope of disclosure.
This clause requires anyone who promotes securities in public to disclose this fact if they have received compensation, whether directly or indirectly. The purpose is to protect investors and ensure transparency and fairness in the market.
But what Aiying wants to say is: Uncompensated, if the influencer does not accept any form of compensation, but simply invests and promotes out of personal interest or belief, they generally do not need to specifically disclose their financial relationship with the project. At this time, their promotion behavior is more regarded as personal opinion or recommendation. (This is also the reason why Trump and Musk's projects have not been targeted yet, which will be mentioned later).
II. Market manipulation
1. According to the Securities Act and the Commodity Exchange Act, market manipulation is illegal
Securities Act: If cryptocurrencies are identified as securities, the SEC will have regulatory authority. If they are not identified as securities, it may be difficult for the SEC to take direct action against market manipulation.
Commodity Act: Even if they are not identified as securities, cryptocurrencies may still be considered commodities, and the CFTC can investigate market manipulation under the Commodity Exchange Act.
2. Whether it constitutes market manipulation requires consideration of the following factors:
Intent: If Musk and Trump's actions are considered to be intentional to influence prices through misleading information or manipulative market behavior and profit from it, then it may constitute market manipulation.
Actual benefits: If it can be proved that Musk and Trump have gained financial benefits through these actions, regulators may investigate further.
Related crypto projects directly or indirectly participated in by Trump and other KOLs
1. Trump-related projects
1. TrumpCoin
This cryptocurrency was created to support Trump and his agenda, but it has not been officially recognized by Trump himself or his team. TrumpCoin was launched in 2016 to support Trump's policies and initiatives. The Trump family has even publicly stated that they have nothing to do with TrumpCoin and threatened legal action.
2. The issuance and promotion of Trump's NFT
Trump did participate in the issuance and promotion of NFTs (non-fungible tokens). Here are a few key points:
Trump Digital Trading Cards: Since December 2022, Trump has released several NFT series that leverage his name and image, including a “Mugshot Edition” that sold out shortly after its initial release.
Revenue and Financial Disclosure: According to financial disclosure documents from the U.S. Office of Government Ethics, Trump has made substantial proceeds from these NFT sales—earning between $100,000 and $1 million through the NFT projects launched by CIC Digital. This, combined with the requirements of the Securities Act and the Investment Advisers Act, is in place and exempt from SEC review.
Second, other KOL cases:
In recent years, the SEC (U.S. Securities and Exchange Commission) has brought multiple enforcement actions against celebrities who have not disclosed paid promotion of cryptocurrencies, and there have been multiple cases of precedent and settlement. Here are some specific cases compiled by Aiying:
1. Kim Kardashian
Kim Kardashian was charged by the SEC with violating Section 17(b) of the Securities Act for failing to disclose the compensation she received when promoting EthereumMax (EMAX) tokens. She agreed to pay $1.26 million in fines and restitution and promised not to promote any crypto asset securities in the next three years.
2. Floyd Mayweather and DJ Khaled
In 2018, Floyd Mayweather and DJ Khaled were charged by the SEC for failing to disclose the compensation they received for promoting initial coin offerings (ICOs). Mayweather was fined more than $600,000 and DJ Khaled was fined more than $150,000.
3. Paul Pierce
Former NBA player Paul Pierce was charged by the SEC for failing to disclose compensation when promoting EMAX tokens on Twitter. He was fined $1.4 million and agreed not to promote any crypto-asset securities for the next three years.
4. Justin Sun and eight celebrities
In 2023, the SEC filed a lawsuit against Tron founder Justin Sun and his company, as well as eight celebrities including Lindsay Lohan, Jake Paul, Soulja Boy, Akon, etc., accusing them of failing to disclose compensation received when promoting Tronix (TRX) and BitTorrent (BTT) tokens. Most of these celebrities agreed to pay a total of more than $400,000 in fines to settle the charges.
Aiying's Comment:The SEC has taken tough enforcement measures against celebrities who failed to disclose paid promotions of cryptocurrencies. Celebrities and influencers must disclose their compensation relationships when promoting cryptocurrencies to avoid legal risks.
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