Over $1 Billion at Stake: Prominent Internet Influencers Triggers Billion Dollar Class Action Lawsuit Over Defunct Crypto Exchange FTX

It’s been a wild few months for the once- popular cryptocurrency exchange, FTX, as millions of global investors have alleged that the exchange was part of a fraudulent scheme that cost investors over a billion dollars. Those same investors have now banded together to sue prominent internet influencers who are being blamed for hyping the now defunct exchange without disclosing the payment they received for pushing the product.

At the heart of the lawsuit is a complaint claiming that content creators such as Ben Armstrong (BitBoy Crypto) and Graham Stephan (finance YouTube creator) – along with seven other individuals and the powerful talent management company, Creators Agency – allegedly promoted unregistered securities on their followers and viewers.

The $1 billion lawsuit claims that the influencers were paid to enthusiastically market and endorse FTX, and that YouTube played a vital role in the process.

“FTX could not have arisen to such great heights without the massive impact of these Influencers, who hyped the Deceptive FTX Platform for undisclosed payments ranging from tens of thousands of dollars to multimillion dollar bribes,” the lawsuit states.

At the time of the exchange’s collapse last November, the lawsuit alleged that several of the defendants “scrubbed their YouTube channels of all video clips endorsing FTX and praising Sam Bankman-Fried” and replaced them with apology videos.

The lawsuit joins a litany of other cases against crypto influencers who promoted FTX without disclosing compensation. These influencers include Anthony Pompliano, Shark Tank investor Kevin O’Leary, Kim Kardashian, and others.

In the U.S., the Securities and Exchange Commission has rules in place that require securities promoters to reveal the nature, amount, and source of their remuneration. Unsurprisingly, some influencers try to get around these regulations by claiming that the assets they promote are not securities.

Alameda Research, a market maker for FTX, was one of the businesses affected by the collapse of the exchange. Amidst the collapse, a court filing revealed that the company’s former CEO, Caroline Ellison, was paid $6 million in payments and loans from the firm she oversaw. The same filing showed that Ellison’s pay paled in comparison to former FTX CEO, Sam Bankman-Fried, who was paid $2.2 billion from Alameda, as well as Nishad Singh and Gary Wang, respectively, who were paid $587 million and $246 million.

Ellison, Wang, and Singh had all pleaded guilty to charges related to an alleged fraud carried out by Bankman-Fried prior to FTX’s bankruptcy filing. Bankman-Fried has since pleaded not guilty to twelve fraud, money laundering, and campaign finance violation charges, the majority of which were brought upon him after the collapse.

Ben Armstrong, one of the named defendants, who goes by “Bitboy Crypto” online, responded to Decrypt with indignation to the claims, telling the publication that he had never had contact with anyone at FTX and never utilized a reflink. He also noted that he would be “countersuing immediately.”

A legal analyst, speaking on condition of anonymity, said that in the U.S., the outcome of the lawsuit depends on whether the exchanges that the influencers promoted are found to be securities. To that end, the Howey test and the Reves test will be applied to determine securities status.

The finalized EU Markets-in-Crypto-Assets bill will also have an impact on the outcome, should the platforms the influencers promoted be ruled as securities. According to the bill, promoters who fail to disclose compensation received may face charges of market manipulation.

With one of the largest class action lawsuits since the FTX debacle in full swing, the case against prominent internet influencers for pushing the platform without disclosing their financial incentive may end in a massive billion-dollar payout for the plaintiffs.

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Steve Gates
Steve shows his dedication by holding 90% in cryptocurrencies, 10% to pay the bills.