Compliance thoughts triggered by Trump NFT project

With Trump potentially re-elected as President of the United States, the future development of the cryptocurrency and NFT markets has attracted widespread attention. During Trump's first term in office, he impressed with his liberalization of financial markets and pro-business policies. This time, his return may bring new changes and challenges to the cryptocurrency market. For details, please see Aiying Ai Ying's article yesterday ""When a gunshot rings out, a thousand taels of gold"? An article reviewing Trump’s “love-hate relationship” with cryptocurrency”.

In recent days, with the release of the news of Trump’s election, the cryptocurrency market has experienced a round of gains. The prices of Bitcoin and other major cryptocurrencies have climbed, reflecting the market’s expectations and reactions to future policy changes. This article will discuss the compliance issues of Trump-related encryption projects and analyze the case studies of KOLs and celebrities promoting cryptocurrency projects.

According to information collected by Aiying, the SEC has been cracking down on such undisclosed celebrity promotion activities in recent years. KOLs can quickly spread information through social media and help projects attract more investment. In March, Monad Labs completed a huge round of financing with a valuation of up to US$3 billion. Venture capital firms like Paradigm participated. Some KOLs can invest at a price one-fifth lower than this valuation, and these KOLs Investors can sell within a few months, rather than waiting for years like equity investments, which is a very attractive way to realize financing, but it has also attracted the attention of the SEC.

kol’s promotion of crypto projects mainly involves several regulatory issues

First, the SEC’s regulations mainly focus on the Securities Law and the Investment Advisers Law. These laws require celebrities or influential people who promote securities to Disclose any form of remuneration to ensure investors have access to transparent information. These regulations are intended to prevent misleading advertising and potentially fraudulent conduct.

These remunerations can include but are not limited to the following forms:

1. Cash payment

This is the most direct form of remuneration, which refers to the cash rewards received directly by influencers.

2. Tokens or Cryptocurrencies

Influencers may receive compensation in the form of tokens or other cryptocurrencies. These tokens can be encrypted assets issued by the project party or other forms of digital currencies.

3. Equity

Influencers may receive equity in the company or project as compensation. This form of compensation is common in early-stage financing for startups and blockchain projects.

4. Other forms of financial compensation

In addition to direct cash or tokens, compensation can also include any form of financial benefits. For example, free products or services, future revenue sharing, or other forms of financial compensation.

5. Contracts and Agreements

Remuneration stipulated in any form of written contract or agreement, whether it is a one-time payment, regular payment, performance bonus, etc., is within the scope that needs to be disclosed.

This clause requires anyone who promotes securities in public and who receives compensation, whether directly or indirectly, to disclose this fact. The purpose is to protect investors and ensure market transparency and fairness.

But what Aiying wants to say is: In the case of no remuneration, if influencers do not accept any form of remuneration and just invest on their own and promote out of personal interests or beliefs, they generally do not need to specifically disclose their relationship with Financial relationship of the project. At this point, their promotional behavior is viewed more as personal opinions or recommendations. (This is also the reason why Trump and Musk’s projects have not been targeted yet, which will be discussed later).

2. Market manipulation

1. According to the Securities Law and the Commodity Exchange Law, market manipulation is illegal

• Securities Law: If cryptocurrency is recognized as a security, the SEC will have regulatory authority. Without being recognized as securities, it may be difficult for the SEC to take direct action against market manipulation.
• Commodities Law: Even if not recognized as securities, cryptocurrencies may still be considered commodities, and the CFTC can investigate market manipulation under the Commodity Exchange Act.

2. Whether it constitutes market manipulation needs to consider the following factors:

• Intention: If Musk and Trump’s actions are considered to intentionally affect prices and profit from misleading information or manipulating market behavior, then it may constitutes market manipulation.
• Actual benefits: If it can be proven that Musk and Trump have obtained financial benefits through these actions, regulatory agencies may further investigate.

The situation of related crypto projects that Trump and other KOLs are directly or indirectly involved in

1. Trump related projects

1. The situation of TrumpCoin

This cryptocurrency was created to support Trump and his agenda , but has not been officially endorsed by Trump himself or his team. TrumpCoin was launched in 2016 to support Trump’s policies and initiatives. The Trump family has even publicly stated that they have nothing to do with TrumpCoin and threatened legal action.

2. Issuance and promotion of Trump NFTs

Trump is indeed involved in the issuance and promotion of NFTs (non-fungible tokens). Here are a few key points:

Trump Digital Trading Cards: Since December 2022, Trump has released a number of NFT series that utilize his name and image, including a "Mugshot Edition". Sold out shortly after initial release.

Revenue and Financial Disclosure: According to financial disclosure documents from the U.S. Office of Government Ethics, Trump has received significant proceeds from these NFT sales - earning anywhere from $100,000 to $1 million through NFT projects launched by CIC Digital wait. This is done in conjunction with the requirements of the Securities Law and the Investment Advisers Law, and is exempt from SEC review.

2. Cases of other KOLs:

In recent years, the SEC (U.S. Securities and Exchange Commission) has conducted multiple enforcement actions against celebrities who failed to disclose paid promotions of cryptocurrencies, and there have been multiple cases and settlements. The following are some specific cases compiled by Aiying:

1. Kim Kardashian

Kim Kardashian was arrested by the SEC for not disclosing the remuneration she received when promoting the EthereumMax (EMAX) token Alleging violations of Section 17(b) of the Securities Act. She agreed to pay $1.26 million in fines and restitution and pledged not to promote any crypto-asset securities for the next three years.

2. Floyd Mayweather and DJ Khaled

In 2018, Floyd Mayweather and DJ Khaled were charged for not disclosing what they received to promote an initial coin offering (ICO) were charged by the SEC for remuneration. Mayweather was fined more than $600,000 and DJ Khaled was fined more than $150,000.

3. Paul Pierce

Former NBA player Paul Pierce was charged by the SEC for failing to disclose compensation when promoting the EMAX token on Twitter. He was fined $1.4 million and agreed not to promote any crypto-asset securities for the next three years.

4. Justin Sun and eight celebrities

In 2023, the SEC filed a lawsuit against Tron founder Justin Sun and his company, as well as eight celebrities including Lindsay Lohan, Jake Paul, Soulja Boy, Akon, etc., accusing them of failing to disclose that they were promoting Remuneration received in Tronix (TRX) and BitTorrent (BTT) tokens. Most of these celebrities agreed to pay fines totaling more than $400,000 to settle the charges.

Aiying Comments: The SEC has taken severe enforcement measures against celebrities who failed to disclose paid promotions of cryptocurrencies. Celebrities and influencers must disclose their compensation relationships when promoting cryptocurrencies to avoid legal risks.

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