The collapse of cryptocurrency exchange FTX has resulted in another lawsuit, this time targeting finance influencers who used video sharing platform YouTube to promote the trading platform.
The $1 billion class action filed on March 15 in the Southern District of Florida, Miami Division, by the plaintiff Edwin Garrison alleges that the YouTubers should be held responsible for promoting FTX at its height.
Garrison, a private investor, named YouTubers Kevin “Meet Kevin” Paffrath, Graham Stephan, Andrei Jikh, Brian Jung, Jeremy “Financial Education” Lefebvre, Tom Nash, Ben “BitBoy Crypto” Armstrong, and Erika Kullberg in the lawsuit.
The lawsuit has also named celebrity promoters such as NFL star Tom Brady alongside former FTX CEO Sam Bankman-Fried.
Allegations of misleading consumers
The class action characterizes the defendants as “influencers” who portray themselves as genuine consumers, providing their followers with valuable and genuine information.
“Though FTX paid Defendants handsomely to push its brand and encourage their followers to invest, Defendants did not disclose the nature and scope of their sponsorships and/or endorsement deals, payments, and compensation, nor conduct adequate (if any) due diligence,” the lawsuit reads.
Per the guidelines for social media influencers provided by the Federal Trade Commission (FTC), creators are obligated to make a clear disclosure when they receive payment for endorsing a product.
Purchasing unregistered securities
Notably, the case with seven plaintiffs from different countries alleges that they purchased unregistered security from FTX as a yield-bearing account (YBA). The plaintiffs claim that they suffered losses by purchasing this unregistered security, which was promoted by the defendants for their own or FTX’s financial gain.
The Moskowitz Law Firm, representing the pl+aintiffs, noted that the lawsuit is a consolidation of multiple class-action suits. Garrison is also a plaintiff in another class-action suit against alleged celebrity endorsers of FTX.
One of the implicated promoters, Kevin Paffrath, in a statement to YouTuber Stephen Findeisen, a.k.a. Coffeezilla said he was not responsible for the losses incurred by FTX investors. However, Paffrath pointed out that he would be willing to work with the plaintiff.
“I’d be happy to work with them as a charity but let’s be clear, that’s what it is. It is not taking responsibility,” he said.
Interestingly, Ben “BitBoy Crypto” Armstrong promised to counter the lawsuit while questioning the credibility of the lawyers behind the class action.
Indeed, there are several lawsuits against FTX and its promoters as investors seek compensation for the losses. At the same time, former CEO Bankman-Fried has an active court case alleging fraud involved in the exchange’s collapse.