Naomi Osaka, Tom Brady and Steph Curry are among celebrities named as defendants in a lawsuit against FTX, the crypto exchange they have endorsed in the past, which filed for bankruptcy last week.
The recent failure of a major cryptocurrency exchange and the unfortunate impact that has resulted for holders and investors of crypto assets demonstrate the need for more effective oversight of cryptocurrency markets. Janet Yellen, US Treasury Secretary
Osaka is one of several American celebrities named alongside FTX founder Sam Bankman-Fried in the lawsuit over FTX’s fraudulent scheme filed in Miami’s federal court.
The high-profile sports stars and personalities have ‘either invested in FTX or been brand ambassadors for the company’ and hyped the exchange in ads and on social media, the court papers say, all targeting investors, who became victims of the stunning collapse of cryptocurrency exchange.
The celebrities helped promote the exchange, which declared bankruptcy in the United States last week in a meltdown that has reverberated across the digital currency landscape, and drawn scrutiny from authorities in multiple countries.
Treasury Secretary Janet Yellen is the latest official to call for more oversight of the crypto industry.
American football star Brady and his supermodel ex-wife Gisele Bundchen, retired basketball great Shaquille O’Neal, Grand Slam champion Osaka, actor/comedian Larry David, and Shark Tank investor Kevin O’Leary are named alongside FTX founder Sam Bankman-Fried in the suit filed last Tuesday.
Bankman-Fried begged investors for a $4 billion bailout in the face of what was described as ‘a liquidity crunch’ that created a solvency risk for FTX, and the crisis was brought on by a bank run-style loss of confidence from customers, who withdrew as much as $6 billion in the 72 hours on Tuesday morning when FTX blocked further withdrawals.
“I’m sorry. That’s the biggest thing,” Bankman-Fried wrote in a series of tweets. “The full story here is one I’m still fleshing out every detail of, but as a very high level, I fucked up twice.
“We saw roughly $5bn of withdrawals on Sunday – the largest by a huge margin.”
Bankman-Fried insists that FTX Investments have managed to avoid total insolvency, so far.
According to a Guardian report the sudden collapse in value of the crypto exchange was prompted by leaked documents, which implied that Alameda Research, a hedge fund with ties with FTX through its common owner, Bankman-Fried, was all-but insolvent.
“One way or another, Alameda Research is winding down trading,” Bankman-Fried added.
Meanwhile, Osaka, who turned 25 in mid-October, is reported to have taken an equity stake in FTX in March, on a ‘long-term’ contract that would pay her in cryptocurrency.
The former World No 1 also helped create branded content, and wore a FTX patch during her matches.
Osaka is named in the lawsuit for directing and producing a ‘glitzy ad’ posted to social media promoting her involvement with FTX, specifically targeting women and minorities: “In exchange for an equity stake in FTX and payments in unspecified amounts of cryptocurrency, Osaka directed and produced content in association with the FTX Entities designed to promote the offer and sale of the unregistered YBA securities, hoping ‘she will reach a global audience’,” the court documents state.
With the lawsuit still ongoing, it remains unclear how much Osaka, or any of her fellow FTX ambassadors, will have to pay to consumers in damages, if any at all.
Osaka, now ranked No 42 in the world, has regularly topped the list of highest-earning female athletes in the world, with Sportico highlighting her $53.2 million haul in 2022 as the current biggest in women’s sport.
An estimated $52 million of that came from endorsements alone, as Osaka promotes more than 20 companies, while the WTA’s website lists her year’s prize money earnings at $1.1 million.
It is unclear how much the crash will cost her but, given her diverse investment portfolio, it is thought Osaka will weather the storm.
Investor Edwin Garrison, of Oklahoma, filed the suit in a Miami court on behalf of other investors, seeking to recover damages from losses suffered in the FTX implosion, and accusing the company of ‘misrepresentations and omissions’.
“FTX’s fraudulent scheme was designed to take advantage of unsophisticated investors from across the country,” the lawsuit alleges. “Some of the biggest names in sports and entertainment have either invested in FTX or been brand ambassadors for the company, and hyped the exchange in ads and on social media.”
The exchange ‘needed celebrities … to continue funnelling investors into the FTX Ponzi scheme, and to promote and substantially assist in the sale’ of the accounts ‘which are unregistered securities’, the court documents said.
The turmoil at FTX, which until recently had been valued at $32 billion, came after Binance, the world’s biggest cryptocurrency platform, backed out of a buyout deal amid reports about mismanagement of client funds and potential investigations by regulators.
“The recent failure of a major cryptocurrency exchange and the unfortunate impact that has resulted for holders and investors of crypto assets demonstrate the need for more effective oversight of cryptocurrency markets,” Treasury’s Yellen said in a statement.
US agencies have highlighted the risks involved in the crypto industry, which could eventually spill over into the traditional financial system, and she called on Congress ‘to move quickly to fill the regulatory gaps the Biden Administration has identified’.
Meanwhile, the House Financial Services Committee last Wednesday announced it will hold a hearing next month to investigate the company’s collapse.
“The fall of FTX has posed tremendous harm to over one million users, many of whom were everyday people who invested their hard-earned savings into the FTX cryptocurrency exchange, only to watch it all disappear within a matter of seconds,” committee Chair Maxine Waters said in a statement. “Unfortunately, this event is just one out of many examples of cryptocurrency platforms that have collapsed just this past year.”
FTX was the third-largest cryptocurrency exchange until it ended up with billions of dollars worth in losses and finally filed for bankruptcy protection on Friday.
As well as endorsements, FTX also had naming rights partnerships, with the Miami Heat’s home venue being called the FTX Arena since June 2021, but this partnership was terminated this week.
The FTX brand also appeared on the side of Mercedes cars and merchandise, an endorsement deal that was agreed in September 2021, and lasted up until the recent Brazil Grand Prix after which the F1 constructor suspended its agreement with the company.
The Florida lawsuit alleges that the endorsements brought instant credibility to FTX and those involved should be held just as culpable as the companies founder.
“Part of the scheme employed by the FTX Entities involved utilising some of the biggest names in sports and entertainment – like these Defendants – to raise funds and drive American consumers to invest, pouring billions of dollars into the deceptive FTX platform to keep the whole scheme afloat,” the lawsuit said.
Class-action attorney Adam Moskowitz pointed to a previous case where Floyd Mayweather was fined $767,500 for promoting cryptocurrency in 2018.
“The crypto industry needed celebrity endorsers to get any credibility,” Moskowitz said.
The case has been filed by Pierce Robertson, who is also involved in a separate lawsuit against another failed cryptocurrency exchange, Voyager Digital, which was endorsed by Dallas Mavericks owner Mark Cuban, but failed for bankruptcy protection over the summer.
Disgraced FXT CEO Bankman-Fried reportedly has since fled to the Bahamas.