When it comes to making business decisions, Taylor Swift does her due diligence all too well.
In 2021, the pop superstar was approached by the now-bankrupt crypto exchange FTX about a $100 million sponsorship deal that would have involved selling tickets as non-fungible tokens (NFTs) to her fans, according to the Financial Times.
However, it never materialized.
Before inking the deal, Swift asked FTX representatives a simple question: “Can you tell me that these are not unregistered securities?” Adam Moskowitz, one of the attorneys leading a class-action lawsuit against FTX’s celebrity endorsers, said during an episode of “The Scoop” podcast.
Moskowitz’s lawsuit is seeking over $5 billion in damages, according to the law firm’s website. The lawsuit claims that FTX’s high-profile promoters didn’t properly research FTX before participating in the “offer and sale of unregistered securities in the form of yield-bearing accounts (‘YBAs’).”
Swift was one of only a few celebrities to question the exchange, Moskowitz says on the podcast.
How investors can identify potential scams
In a December complaint, the Securities and Exchange Commission (SEC) alleged that FTX’s native digital token, FTT, fits the agency’s definition of a security because it was offered and sold as an investment contract. The SEC uses the “Howey test” to determine whether something counts as an investment contract, which includes the following criteria:
- There is an investment of money;
- in a common enterprise;
- in which the investor expects a profit; and
- the profit is derived solely from the efforts of others.
It’s against federal law for a company to offer or sell securities unless the offering has been registered with the SEC or an exemption to registration is available, according to the agency’s website. Although many companies raise funds from investors through unregistered offerings, fraudsters may also use them to conduct investment scams, the SEC warns.
Everyday investors can scrutinize unregistered…
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