Claiming FTX Earn yield accounts are securities, the lawsuit said the bankrupt firm paid a fortune to some top YouTubers, who "played a major role in the FTX disaster."
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A class action lawsuit is seeking $1 billion from nine top crypto social media influencers who promoted the now-bankrupt FTX exchange to their millions of followers.
The lawsuit was filed in a federal court in Miami, arguing that the defendants promoted both FTX and its yield-bearing FTX Earn accounts without disclosing the nature of their deals with the exchange and the amount of compensation they received.
The latter is the cause of the lawsuit, as U.S. securities law requires that anyone promoting a security disclose not only that they are a paid endorser, but also how much they earned.
The SEC has argued that yield-bearing "Earn" accounts like FTXs are securities offerings that must meet strict and extensive disclosure requirements.
Claiming that the lawsuit "may be one of the only avenues for any of the victims to recover any of their damages," it argued that "influencers played a major role in the FTX disaster." It added:
"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 argues that "crypto firms like FTX turned to celebrity and social media endorsers to position itself as the 'safe' option among cryptocurrency exchanges… [despite being] a house of cards that misappropriated customer assets."
It points to "mea culpas and apology videos" made by Kevin Paffrath, Graham Stephan, and Tom Nash, who "scrubbed their YouTube channels of all video clips endorsing FTX and praising Sam Bankman-Fried."
Stephan said he "can't even begin to share how devastated and sorry I am … I made the mistake of assuming that Sam Bankman-Fried's image had anything to do with his credibility."
The lawsuit claimed Paffrath earned $2,500 anytime he mentioned FTX. In a video, he called his FTX sponsorship a "disgrace" and a "scar." He added:
"If I could go back I would change it, because people got hurt because of that. I feel so terribly about that. People got hurt because of FTX and it's a disgrace."
Other influencers named in the suit include Andrei Jikh, Jaspreet Singh, Brian Jung, Jeremy Lefebvr and Ben Armstrong, as well as Erika Kullberg and her Creators Agency.