How Paris Hilton and celebrities made SEC, FTC, and FDA see red: possibly illegal endorsements and reviews are exploding; how to spot them and avoid them

What do actor Jamie Foxx, ex-Boxer Floyd Mayweather, rapper DJ Khaled, soccer player Luis Suarez, and hotel heiress Paris Hilton have in common?

They all endorsed an initial coin offering (ICO), either publicly or online. Jamie Foxx tweeted about anticipating Cobinhood, Floyd Mayweather and DJ Khaled endorsed Centra, Luis Suarez endorsed Stox. Paris Hilton tweeted that she supported ICO of Lydian. only to delete the tweet 3 weeks later.

New York Times wrote an expose on how boxer Floyd Mayweather and rapper DJ Khaled endorsed an ICO called Centra, despite many questions about the head of the company and the business model. And that is when Security Exchange Commission (SEC), the regulatory body of investments in the US, started to see red.

SEC had already issued an investor bulletin in July specifically on ICOs, warning that some ICOs may be considered securities in the US, and promotion of such may violate security laws because they are not registered with the SEC.

SEC in September 2017 closed two fraudulent ICOs and alleged Maksim Zaslavskiy of fraudulently promoting two ICOs, REcoin and DRCoin, which were advertised as being backed by real estate and diamonds. SEC alleged that Zaslavskiy raised only 1/10th of the money he actually did, and never hired any experts nor purchased any diamonds or real estate as it claimed it did or will do. SEC obtained a court order to freeze all assets of companies related to these two ICOs.

SEC on November 1st issued a directive to all people, but specifically, celebrities who promote/endorse ICOs.

Any 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.  A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws.  Persons making these endorsements may also be liable for potential violations of the anti-fraud provisions of the federal securities laws, for participating in an unregistered offer and sale of securities, and for acting as unregistered brokers.  

Paris Hilton seems to be the only celebrity who had walked back on his or her ICO endorsements as of 11/11/2017.

But SEC wasn't the only US Federal agency out looking for misleading and possibly illegal endorsements. Federal Trade Commission (FTC), and Federal Drug Administration (FDA) are also clamping down on such illegal behavior that may be misleading consumers.

This looks familiar: SEC shuts down two ICOs (RECoin and DRC) for bogosity

Two days ago (September 29th, 2017) SEC shut down two companies ran by Maksim Zaslavskiy trying to promote ICOs, or initial coin offerings. Zaslavskiy claimed his cryptocurrencies are backed by Real Estate (REcoin) and Diamonds (DRC - Diamond Reserve Club/Coin). Turns out they are just bogus claims.

For those who track this sort of things, this is a virtually beat-for-beat clone of an earlier scam, Gemcoin, "backed by amber", shut down by SEC back in 2015.

Gemcoin was a fictional cryptocurrency released by USFIA based in Arcadia, California. Its head is Steve Chen (also known as Chen Li 陳力).  Chen ran 13 different entities that dabbled in MLM telecom, real estate, jewelry and gemstones, art imports, and so on, and also encouraged recruitment from inside China. In 2014, his latest scheme, American Mining 美洲礦業 collapsed in China leading to multiple arrests. American Mining also promised massive profits by investments in amber.

Steve Chen's final scheme, Gemcoin, is aimed at overseas Chinese ex-pats. It is supposedly a cryptocurrency like Bitcoin but backed by amber. It also claimed amber is very valuable and USFIA has exclusive mining rights and jewelry factory in the Dominican Republic. It had the backing of several local celebrities, including former mayor of Arcadia John Wuo. Steve Chen and his second, Leonard Johnson, ran investment seminars in multiple Chinatowns across North America, sometimes even dressing up his security guard, John Zhang, as a "jewelry appraiser".

When SEC finally shut down USFIA/Gemcoin in 2015, the scheme had taken in over 30 million dollars. John Wuo, who had endorsed Gemcoin, quickly resigned as city councilman "due to health reasons".  And the truth started coming out... The receiver who took over the company said there are no gem grade amber in storage, just regular 'souvenir' grade stuff. And the alleged contract for the mine doesn't exist either. It was all one huge hoax scam. 

When you go through the history of REcoin and DRC, you will find a familiar albeit accelerated pattern.