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Thursday, June 20, 2024

What Are the Rules for Celebrities Promoting NFTs?

This January, actress Mila Kunis videoconferenced with Mark Zuckerberg’s sister Randi Zuckerberg to discuss her NFT project, “Stoner Cats,” as a few thousand viewers watched from home. The conversation was part of an online event held by the new crypto-for-ladies group MyBFF. All evening, speaker after speaker had stressed how savvy women should jump into the world of Web3 quickly, before men snatched up all the riches. But Kunis took a beat to throw in a caveat. “I don’t ever want people going into NFTs thinking it’s an investment,” she said. “Go into it because you love it, because you think it’s beautiful, because it brings you joy.” Then she mentioned, off-handedly, that, also, the Securities and Exchange Commission would “go after” them if they were presenting NFTs like an investment. It was a surprising admission—in the booming world of celebrity NFT shilling, there barely appears to be any regulation at all.

Celebrities love NFTs. Some famous types have launched their own projects, like Quentin Tarantino, who is selling NFTs based on his original Pulp Fiction screenplay. Others like to draw attention to projects they’ve backed, like the Bored Ape Yacht Club. Gwyneth Paltrow, Eminem, Steve Aoki, Jimmy Fallon, Paris Hilton, Shaquille O'Neal, Post Malone, The Chainsmokers, DJ Khaled, Future, Snoop Dogg, Lil Baby, Mark Cuban, Steph Curry, and Serena Williams have all posted about their apes; Timbaland both owns a BAYC NFT and has launched a production company for BAYC owners.

Justin Bieber, meanwhile, posted about an image of a Bored Ape on Instagram in January, and now has two in his digital wallet, although it’s unclear whether he actually paid for them personally or in fact owns them at all. (Bieber did not respond to requests for comment.) The pseudonymous blog Dirty Bubble Media has been documenting some of the weirdness surrounding the celebrity NFT push, tracing blockchain movement to theorize that some celebrities may have more of a financial stake in the NFTs they are promoting than they let on, including Bieber. Was he paid to promote some of the NFTs he has posted about, either with free NFTs or regular old American dollars?

We don’t know right now. But say a hypothetical celebrity were to accept a free NFT in exchange for promoting it. If this is the case, the Federal Trade Commission’s current guidelines about social media promotions should apply, according to Bonnie Patten, the executive director of consumer advocacy group Truth in Advertising. “The law is clear that if you are gifted an item that you then promote, you are required to clearly and conspicuously disclose that material connection,” she says. Ethan Wall, a lawyer specializing in legal issues related to social media, agrees. “The same rules that apply to influencers that get paid to promote products and services also apply to NFTs,” he says. The hypothetical celebrity would have to disclose they were promoting a product in much the same way they would have to affix “#ad” or other disclosures to social media posts.

What about if a celebrity were to receive a free NFT from a third party organization, perhaps some kind of concierge service or marketing agency acting as a middle-man? Same deal—the current guidelines should also apply. Robert Weissman, the president of consumer advocacy organization Public Citizen, believes that the underlying principles of the FTC’s endorsement guidelines are clear, although they weren’t written with the convoluted world of NFTs in mind. “One of the core concepts is that people have a right to know when they are being advertised to,” Weissman says. “There’s a duty on advertisers and endorsers to make affirmative disclosures to this effect, when consumers would not normally know they are being advertised to.”

So will the FTC enforce its rules against celebrities and influencers who appear to be promoting NFTs without properly disclosing their financial stake? It’s unclear, and the FTC declined to comment on its approach to NFT regulation.

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And why was Kunis talking about the SEC rather than the FTC? Well, both agencies will likely have a role to play in regulating NFTs. There’s still a debate about what exactly non-fungible tokens are, especially as their financialization continues to accelerate. They may end up classified as securities, especially fractionally-owned NFTs. In Kunis’ case, as she’s up-front about the fact that she owns “Stoner Cats,” she’s not in a gray area about disclosing advertisements anyways. (Kunis is also the rare celebrity with no social media presence.)

Whether or not NFTs are currently officially classified as securities, they are already being treated as speculative assets in the marketplace. These digital objects are often bought with the expectation that owners will be able to sell them for a profit. An ordinary person might not be able to afford the Bored Ape Yacht Club NFTs that so many celebrities love and promote, but they do have the option to buy a fraction of an ape through a service called Rally Rd. (At the time of writing, a “share” in #BAYC9159 is $5.) As the financialization of NFTs continues, it’ll be difficult for the SEC to ignore their drift from collectibles into the realm of securities.

Until there is some enforcement of NFT promotions, though, celebrities and influencers aren’t likely to stop hyping up their favored tokens. “Technology always advances faster than the law can adapt,” Wall says. “What you’re seeing with these celebrities, it could be that it’s the Wild Wild West; they think there are no rules and they can do what they want. Or they have a lack of knowledge. Or, they just don’t care.” Even if they have purchased NFTs personally and aren’t getting compensated to promote them, the pyramid-shaped structure of the NFT economy means that trying to persuade others to buy into a particular NFT collection resembles trying to recruit a downline. Celebrities who push incredibly risky investments deserve careful scrutiny, because regular people who see these promotions deserve to know what they’re getting sold.

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