Tom Brady, Larry David, and Others Named Defendants in Class Action Suit Filed Against FTX
Four days after FTX, once the world’s third-largest crypto exchange, filed for voluntary Chapter 11 bankruptcy, former FTX investors filed a class action against 11 athletes and celebrities who promoted FTX in advertisements and on social media, including NFL quarterback Tom Brady and comedian Larry David.
The lawsuit, which also names FTX’s co-founder and former chief executive Sam Bankman-Fried as a defendant, seeks $11 billion in damage.
The FTX bankruptcy filing covers about 130 FTX Group companies, including FTX.com, FTX’s US operations, and Bankman-Fried’s cryptocurrency trading firm, Alameda Research. According to published reports, Bankman-Fried had covertly used funds from FTX customers to make risky bets for Alameda Research - a hedge fund he also ran – and had commingled funds between the two entities.
Allegations Against FTX Celebrity Endorsers
The class action was brought on behalf of US investors who hold FTX yield-bearing accounts funded with crypto assets. The plaintiff and class-action members alleged that FTX lured them to its yield-bearing accounts and transferred investor funds to related entities to maintain the appearance of liquidity.
While an investor class action following bankruptcy is not necessarily surprising, the fact that the complaint named various celebrity endorsers and spokespeople as defendants is fairly unusual. Among them, Larry David starred in an advertisement for FTX that aired during the 2022 Super Bowl. The ad featured David being a skeptic on inventions such as the wheel, the fork, the toilet, democracy, the light bulb, the dishwasher, the Sony Walkman, and, finally, FTX, and cautioned viewers, “Don’t be like Larry.” Other conduct cited by the complaint includes:
Tom Brady and Gisele Bundchen: according to the complaint, Brady and Bundchen served as brand ambassadors for FTX, took equity stakes in FTX Trading Ltd., and appeared in an advertisement showing them telling acquaintances to join the FTX platform.
Kevin O’Leary: served as brand ambassador and FTX shareholder and made several public statements, including on Twitter, “designed to induce consumers to invest in” FTX’s yield-bearing accounts.
Naomi Osaka: the tennis star served as a brand ambassador for FTX in exchange for an equity stake and payments in an unspecified amount of cryptocurrency, appeared in advertisements, and promoted FTX to her Twitter followers.
The plaintiff and class members claimed that those FTX promoters engaged in a conspiracy to defraud investors and violated Florida state laws prohibiting unfair business practices. Specifically, in their civil conspiracy claim, the plaintiff and class members alleged that “the FTX Entities and Defendants made numerous misrepresentations and omissions to Plaintiff and Class Members about the Deceptive FTX Platform in order to induce confidence and to drive consumers to invest in what was ultimately a Ponzi scheme, misleading customers and prospective customers with the false impression that any cryptocurrency assets held on the deceptive FTX Platform were safe and were not being invested in unregistered securities.” 
Celebrities Under Scrutiny in Crypto Industry
The US Securities and Exchange Commission (SEC) has gone after celebrities for deceptively touting cryptocurrencies since 2017. In November 2017, SEC Chair Gary Gensler warned celebrities that federal securities laws require people who tout a certain stock or crypto security to disclose the amount, the source, and the nature of those payments they received.
In October 2022, the SEC found that Kim Kardashian violated the anti-touting provision of the federal securities laws by plugging on social media a crypto asset security offered and sold by EthereumMax (EMAX) without disclosing the payment she received for the promotion. Kardashian later settled with the SEC, paid $1.26 million in penalties, disgorgement, and interest, and cooperated with the Commission’s ongoing investigation. “Ms. Kardashian’s case also serves as a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities,” Gensler added.
Investors have also gone after celebrities for deceptively touting cryptocurrencies. In January 2022, a group of investors filed a lawsuit against Kim Kardashian, along with boxer Mayweather and former basketball star Paul Pierce, for losses they suffered after the celebrities promoted EMAX.
This case offers a stark warning to celebrities and non-crypto companies that might be considering serving as brand ambassadors or paid influencers for crypto companies, or engaging in sponsorships. Any individual or organization considering entering into a co-promotion or sponsorship agreement with a company in the crypto industry should ensure adequate due diligence has been conducted on the potential partner and carefully scrutinize crypto and NFT offerings for potential liability or exposure under US securities laws. Notably, the US Federal Trade Commission is also carefully scrutinizing the use of influencers and endorsements in commercial marketing and imposes its own disclosure obligations.
 See Complaint, Count Three.
 See SEC Statement Urging Caution Around Celebrity Backed ICOs, available at SEC.gov | SEC Statement Urging Caution Around Celebrity Backed ICOs.
 See SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security, available at SEC.gov | SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security.