Wall Street regulator warns celebrities, individuals touting digital coins

NEW YORK (Reuters) - Wall Street’s main regulator warned on Wednesday that celebrities or other individuals may be breaking U.S. securities law when promoting investments in initial coin offerings (ICOs), a means for companies to raise funds online.

A Wall Street sign is seen in Lower Manhattan in New York, January 20, 2016. REUTERS/Mike Segar

ICOs have become an increasingly popular fundraising mechanism for young technology companies, enabling them to quickly raise millions of dollars by creating and selling digital coins online such as bitcoin with little regulatory oversight.

Over the past few months some projects have received endorsements on social media by celebrities including hotel heiress Paris Hilton, boxer Floyd Mayweather and rapper The Game.

But the U.S. Securities and Exchange Commission said that endorsements may be unlawful if the coins are considered securities and the celebrities do not “disclose the nature, scope, and amount of compensation received in exchange for the promotion.”

“A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws,” the SEC’s Enforcement Division and Office of Compliance Inspections and Examinations said in a joint statement.

Promoters may also be liable for possible violations of anti-fraud rules and for acting as unregistered brokers, the statement added.

“The SEC will continue to focus on these types of promotions to protect investors and to ensure compliance with the securities laws,” the SEC said.

The SEC’s notice is the latest warning by a global financial regulator on ICOs, which may make companies and individuals involved in the fundraising schemes more cautious.

ICOs have raised $2.2 billion from January to September, according to data provider Novum Insights.

In July the SEC said that some of the coins may be considered securities subject to federal rules and obligations. The assessment also involves examining the reasonable expectation of participants in ICOs.

Authorities in Switzerland, Birtain and Malaysia have also issued warnings on the risks associated with ICOs, while regulators in China and South Korea have banned them.

Reporting by Anna Irrera; Editing by Sandra Maler