Shaq’s NFT Case Expands Legal Perils for Celebrity Promoters

Celebrities promoting cryptocurrency and other digital asset projects face potentially significant liability under US securities laws, a recent court ruling against Shaquille O’Neal shows.

His failed bid to exit a suit by token holders highlights the risks in a developing area of technology and law, attorneys say. O’Neal and other celebrities—including Tom Brady, Gisele Bundchen, Steph Curry, Naomi Osaka, Shohei Otani, and Larry David—are also facing a reckoning for similar endorsements in a separate suit over the demise of crypto platform FTX.

“At a minimum, it’s a big warning sign for those considering promoting the projects,” said Oleg Elkhunovich of Susman Godfrey LLP. “You are as responsible as the person issuing the token.”

The case stems from the loss in value of Astrals and Galaxy nonfungible tokens in the wake of FTX’s collapse in 2022. NFT holders brought a would-be class action against O’Neal in 2023 for the sale of unregistered securities, saying he founded the Astrals Project and heavily promoted its tokens.

The token holders sufficiently alleged that the former NBA star and sports analyst was a “seller” of Astrals and Galaxy NFTs, and that the tokens meet the definition of securities, the US District Court for the Southern District of Florida said Aug. 16.

Read More: The Disastrous Record of Celebrity Crypto Endorsements

O’Neal can be considered a seller because the complaint alleges he solicited the tokens’ purchase, Judge Federico A. Moreno said. He cited a 2022 decision of the US Court of Appeals for the Eleventh Circuit, Wildes v. BitConnect Int’l PLC, which held that public communications such as podcasts, social media, and videos—not just previously recognized media like newspaper and radio—could be vehicles for soliciting buyers under the Securities Act. Wildes concerned non-celebrity promoters. The Ninth Circuit joined the Eleventh Circuit later that year in a case against a property investment and management company and its principal.

Adam Moskowitz of the Moskowitz Law Firm, who represents the Astrals and Galaxy holders, called Moreno’s opinion “the first extensive ruling on cryptocurrency and celebrity promotions” when it came out. O’Neal’s attorney didn’t respond to a request for comment.

The ruling also fills a gap in a jurisdiction heavy on these types of situations. “The decision is from Miami,” Elkhunovich said. Numerous digital asset projects are based there, and the court hasn’t issued very many opinions in token cases so far, he said.

NFL player Trevor Lawrence was among seven alleged FTX promoters who agreed to settle investor claims in March, and Moskowitz says a global settlement is likely on the horizon. In a separate case, Miami Heat basketball player Jimmy Butler and a YouTube influencer recently agreed to resolve claims that they helped dupe Binance Holdings Ltd. customers into buying unregistered securities. The FTX and Binance cases are both pending in the Southern District of Florida as well.

Valuable Endorsements

Endorsement deals for celebrities can be more valuable than their salaries, sometimes by a multiple of it, Keith Miller of Perkins Coie LLP said. “Endorsement deals represent an important economic incentive for them to promote products,” he said.

Media personality Kim Kardashian and former basketball player Paul Pierce settled with the Securities and Exchange Commission over statements of theirs relating to EMAX tokens. But those settlements were “in a different context that had to do with anti-touting provisions, which require promoters to disclose their compensation when they’re going in trying to promote a project,” said William Kraus of Pierson Ferdinand LLP.

Miller said there’s “regulatory ambiguity” about digital assets. He’s “optimistic that forthcoming legislation and clearly articulated regulations and guidance will provide much-needed direction,” he said.

And civil litigation against celebrities has become more active, using a variety of state and federal claims, said Andrea Surratt of Crowell & Moring LLP. “It’s not surprising that the plaintiffs’ bar sees celebrities as having deep pockets, especially in an area where the law is still developing,” she said.

“If I were a celebrity, I would absolutely seek legal counsel” before promoting crypto assets, she said. “There is room for celebrities to step in it in this arena.”

New Media, New Products

The new ruling in O’Neal’s case brings a spotlight to the meaning of solicitation. “While we think of a seller as someone transferring title to property, it actually extends under the securities laws to someone who solicits a purchase for the project’s benefit,” said Kraus. “It really has to be something close to urging or persuading a purchase of the digital asset, but it also doesn’t need to be individualized, which I think is an important point—not telling a specific person, ‘Hey, William, you should buy this token.’”

“In the past, of course, we would point to a radio advertisement or a newspaper advertisement,” Kraus said. Courts are now more willing to point to YouTube videos and other online posts as enough to qualify someone as a seller, he said.

Moreno also said the NFTs could be considered securities, an issue that has prompted varying decisions in the courts.

“These particular NFTs, the Astrals, have indicia of non-securities and indicia of securities,” said Elkhunovich, who has a plaintiff-side practice in the crypto area. “The court said the plaintiffs alleged enough that it could be a security,” he said.

Kraus pointed to the breadth of opinions about what constitutes a security. “Even where that promotion may not seem at first glance to be saying the price will increase, there really is a broad interpretation of the law as to what might be an issue under the securities laws,” he said. Even statements in a blockchain-based case about “the functionality of the network” or “the growth of the ecosystem” can be used to show something is a security, he said.

Because of the uncertainty with cutting-edge products, “you have more of an obligation to think about what you’re promoting,” Elkhunovich said.

The case is Harper v. O’Neal, S.D. Fla., No. 1:23-cv-21912, 8/16/24.