The lawyers that are trying to kill crypto

Celebrities notoriously endorse all kinds of things—and depending on who, and what their financial situation is, some are more discerning than others. Usually, these celebrities, public figures, and all-around famous people have teams that advise them against running into the legal liability of promoting something shady. But as multibillion-dollar venture capital firms missed the red flags flying around FTX, it seems that lots of celebrities did too. And now, according to lawyer Adam Moskowitz, they could be on the hook.

Coins2Day’ s Shawn Tully reported the details of how class action lawyer Adam Moskowitz, along with seasoned lawyer David Boies, have orchestrated a litigation strategy to go after celebrities that promoted failed crypto projects to get back money for customers who lost their deposits. Tully explains:

By joining forces, Moskowitz and Boies have launched a broad legal attack that’s already muzzling the once buzzing, celebrity-driven hype that so charged enthusiasm for crypto. Their overriding strategy consists of pursuing celebrities and influencers for money lost by individual investors they could never recover in bankruptcy court. ‘First, we sued Voyager, and FTX is supposed to save them, and they go bankrupt,’ says Moskowitz. ‘Two of the biggest players with the most liability implode, so it’s extremely hard for the small customers we represent to recover their money from the companies themselves.’ For the new teammates, going after the crypto hucksters is the route to big recoveries. 

In November, they sued Sam Bankman-Fried and eleven celebrities who’d served as highly-paid ‘brand ambassadors’ for his collapsed FTX exchange, a cast that included Tom Brady, Shaquille O’Neal, Stephan Curry, David Ortiz, tennis star Naomi Osaka and CNBC personality Kevin O’Leary, as well as the Golden State Warriors.

What exactly are these celebrities being sued for? Mostkowitz and Boies are alleging that many celebrities violated the law in two ways. The first being that they allegedly illegally promoted unregistered securities that were not registered with the Securities and Exchange Commission and without the SEC’s approval. The second is that the celebrities did not publicly disclose that they were receiving compensation and how much they were receiving when they touted the projects.

If found guilty of the first charge, these celebrities could face huge losses. According to Tully:

Put simply, if the declines in cryptocurrencies that an account harbors exceeded the gains, the customer’s entitled to recoup the entire net deficit. If the courts deem the products securities, which is far from certain, Moskowitz and Boies could win giant settlements, given the wealth of the promoters and size of the losses that Moskowitz estimates at $3.5 billion for Voyager and $5 billion at FTX. Though still to be determined, Binance’s potential liability, says Moskowitz, will also be in the billions.

Yet it is unclear if the legal duo will be able to prevail in court. Lee Reiners, a lecturing fellow at Duke University School of Law, told Tully he thinks the duo has a “good chance of winning,” adding their cases are really the only hope the people who invested have to get some of their money back. 

The celebrities have all denied wrongdoing in their involvement. Tully writes:

As for the celebrities and influencers, most have let their prestigious attorneys do the talking via court filings…In mid-December, Shaq declared on CNBC, ‘A lot of people think I’m involved, but I was just a paid spokesperson for a commercial.’ [Mark] Cuban and the Mavericks and the FTX brand ambassadors have filed motions to dismiss their cases. The FTX influencers and Binance have yet to respond.

What are the broader implications? VCs suffered their own round of embarrassing forced retractions after they vouched for founder Sam Bankman-Fried before FTX fell apart. Sequoia deleted a now notorious website post promoting Bankman-Fried and labeling him as a quirky genius. But is being cringe-worthy against the law? In February, one FTX investor sued a slew of VC firms that invested in FTX, including Sequoia, Paradigm, and Thoma Bravo. Yet it is unlikely that the firms will be found liable, given VCs are pretty securely legally protected from investing in projects that fail, legal experts explained to me back in November when FTX went down.

Yet one thing is clear: Ad campaigns were certainly a force luring many to try crypto and fueling the FOMO cycle—and the headlines—that also helped stoke VC interest in the space. Now we’ll see what happens when the celebrities are gone. “Celebrities won’t go near crypto ads now, and we’ve had a big role in that,” said Moskowitz.

You can read the full story here. 

Lucy Brewster
Email: [email protected]
Submit a deal for the Term Sheet newsletter here.

Jackson Fordyce curated the deals section of today’s newsletter.

VENTURE DEALS

- Instruqt, a Hilversum, Netherlands-based product growth platform, raised €15 million ($16.54 million) in Series A funding led by Blossom Capital. 

PRIVATE EQUITY

- Advent International and British Columbia Investment Management Corporation acquired Maxar Technologies, a Westminster, Colo.-based space solutions provider to the U.S. Government and its allies. The deal is valued at approximately $6.4 billion. 

- ARC Health, a Thurston Group portfolio company, acquired Positive Change Counseling Center, a La Mesa, Calif.-based mental health practice. Financial terms were not disclosed. 

- One Equity Partners acquired Kirey Group, a Milan-based IT systems integrator and technology solutions developer, and Synergyc, a Sofia, Bulgaria-based IT services solutions provider. Financial terms were not disclosed.

OTHER

- Recursion agreed to acquire Cyclica, a Toronto-based drug discovery platform for $40 million, and Valence, a Montreal-based drug discovery platform for $47.5 million. 

- Tiff’s Treats acquired a minority stake in Baked by Melissa, a New York-based cupcake brand. Financial terms were not disclosed.

IPOS

- ACELYRIN, an Agoura Hills, Calif.-based late-stage biotech developing inflammatory diseases therapies, raised $540 million in an initial public offering of 30 million shares priced at $18. The company originally planned to raise up to $370.8 million through the sale of 20.6 million shares priced between $16-18.

- Xiamen Yan Palace Bioengineering, a Chinese edible bird’s nest producer, is considering an initial public offering in Hong Kong that could raise about $200 million, according to Bloomberg.

PEOPLE

- Systemiq Capital, a London-based venture capital firm, hired Matthew Goldstein as general partner and Lydia Guett as head of growth. Formerly, Goldstein was with M12 and Guett was with Cambridge Associates.