Floyd Mayweather's and DJ Khaled's endorsements of new digital coin sales may be illegal if the celebrities do not disclose how they are benefiting, the Securities and Exchange Commission said.
"Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments," the commission said. "These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement."
The warning comes after The New York Times published Friday a detailed expose of celebrity endorsements of token sales and the lack of clarity around the projects, which can often raise tens of millions or even hundreds of millions of dollars.
Mayweather, a boxer, has promoted three tokens, while rapper DJ Khaled, Paris Hilton and soccer player Luis Suarez have all endorsed new coin sales, the Times said.
Initial coin offerings have taken off over the last 18 months and have raised more than $3 billion in total, according to financial research firm Autonomous Next.
As digital currencies bitcoin and ethereum have soared in value this year, a flurry of new projects have launched based on the same blockchain technology and have sold their own digital coins as a way to raise funds for the development.
Some of the coins will become a way for users to interact with the completed project, and developers say the token sale process allows them to raise funds more quickly than more traditional routes like venture capital. However, many of the projects barely exist beyond an online whitepaper and a small team of developers.
Some token sales have preemptively barred U.S. residents from officially participating for fear of retaliation from U.S. regulators.
The SEC this summer signaled securities laws may apply to digital coins, and issued an investor bulletin about the risks of investing in the coin sales.
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