Nov 16 (Reuters) – US crypto investors are suing FTX founder Sam Bankman-Fried and several celebrities who promoted his exchange, including NFL quarterback Tom Brady and comedian Larry David, alleging they engaged in fraudulent practices used to sell high-yield FTX currency accounts.
The proposed class action lawsuit, filed Tuesday night in Miami, alleges that high-yield FTX accounts were unregistered securities unlawfully sold in the United States.
FTX has filed for bankruptcy and is under investigation by US authorities following reports that $10 billion in client assets were transferred from FTX to Bankman-Fried’s trading firm Alameda Research.
At least $1 billion in client funds is missing, sources told Reuters.
When the crypto exchange faltered due to liquidity issues, US investors suffered $11 billion in damages, the lawsuit states.
The lawsuit seeks damages from Bankman-Fried and 11 athletes and other celebrities who promoted FTX, including David, creator of “Seinfeld” and “Curb Your Enthusiasm.”
David starred in a commercial for FTX that aired during Super Bowl 2022, in which he portrayed fictional characters who dismissed major innovations throughout the story and ended with the message “Don’t Miss Out on Crypto”.
Brady, tennis star Naomi Osaka and professional basketball team Golden State Warriors are also defendants in the lawsuit.
Representatives from Bankman-Fried, Brady, Osaka, David and the Golden State Warriors did not immediately respond to requests for comment Wednesday.
John J. Ray III, FTX’s new chief executive officer, who is not named as a defendant in the lawsuit, declined to comment on the allegations.
The lawsuit was brought on behalf of Edwin Garrison, an Oklahoma resident who had a high-yield FTX account that he funded with crypto assets to earn interest, and others like him.
Garrison alleges that while FTX lured US investors into its high-yield accounts, it was a “Ponzi scheme,” with investor funds being reallocated to affiliated companies to maintain the appearance of liquidity.
Investors and the U.S. Securities and Exchange Commission (SEC) have previously prosecuted celebrities for misleading cryptocurrency advertising.
Reality TV star Kim Kardashian agreed in February to pay the SEC $1.26 million to settle claims that she had failed to disclose that she was being paid to promote EthereumMax tokens. She has not admitted the wrongdoing.
Private investors have also sued Kardashian and others for their role in promoting the tokens.
Garrison cited those cases in his lawsuit, as well as a February 11th U.S. Circuit Court of Appeals ruling that allowed BitConnect cryptocurrency investors to sue people who promoted the coin online.
His lawsuit alleges that Bankman-Fried and FTX promoters were involved in a conspiracy to defraud investors and violated Florida state laws requiring securities registration and prohibiting unfair business practices.
Sean Masson, an attorney at Scott+Scott representing crypto investors in the EMAX case, said investors have used Florida’s unfair trading law to target crypto promoters in pending court cases.
“To be successful, they must demonstrate a fraudulent act or unfair practice that caused actual harm,” Masson said.
Reporting by Abinaya Vijayaraghavan in Bengaluru and Jody Godoy in New York; Edited by Noeleen Walder, Anna Driver and Matthew Lewis
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