Nov. 16 (Reuters) – Cryptocurrency investors in the United States have sued FTX founder Sam Bankman-Fried and several celebrities who promoted his exchange including NFL quarterback Tom Brady and comedian Larry David, alleging They have engaged in deceptive practices to sell FTX yield-bearing cryptocurrency accounts.
The proposed class action lawsuit filed Tuesday night in Miami alleges that interest-bearing accounts on FTX were unregistered securities that were sold illegally in the United States.
FTX has filed for bankruptcy and is facing scrutiny from US authorities amid reports that $10 billion in client assets has been transferred from FTX to Bankman Fried’s trading company Alameda Research.
Sources told Reuters that at least $1 billion in client funds were missing.
The lawsuit says that when the cryptocurrency exchange faltered due to concerns about liquidity, US investors suffered $11 billion in damages.
The lawsuit is seeking damages from Bankman-Fried and 11 other athletes and celebrities who promoted FTX, including David, creator of “Seinfeld” and “Curb Your Enthusiasm.”
David starred in a commercial for FTX that aired during the 2022 Super Bowl in which he portrayed fictional characters rejecting important innovations throughout history and ended with the message “Don’t miss out on Crypto.”
Among the defendants in the lawsuit are Brady, tennis star Naomi Osaka and the professional basketball team, the Golden State Warriors.
Representatives for Bankman Fried, Brady, Osaka, David and the Golden State Warriors did not immediately respond to requests for comment on Wednesday.
John J. Ray III, FTX’s new CEO who is not named as a defendant in the lawsuit, declined to comment on the allegations.
The lawsuit was filed on behalf of Edwin Garrison, an Oklahoma resident who had a yield-holding FTX account that he funded with crypto assets to earn interest, and others like him.
Garrison claims that while FTX lured US investors into its yield-bearing accounts, it was a “Ponzi scheme” in which investors’ money was swapped into related entities to maintain the appearance of liquidity.
Investors and the US Securities and Exchange Commission have previously hounded celebrities for deceptively promoting cryptocurrencies.
Reality TV star Kim Kardashian agreed in February to pay $1.26 million to the US Securities and Exchange Commission (SEC) to settle claims that she failed to disclose that she was paid to promote EthereumMax tokens. She did not admit any wrongdoing.
Private investors have also sued Kardashian and others over their role in promoting the tokens.
Garrison cited these issues in his lawsuit, as well as a February ruling by the US 11th Circuit Court of Appeals that allowed BitConnect cryptocurrency investors to sue individuals who promoted the currency online.
His lawsuit alleges that Bankman-Fried and FTX promoters participated in a conspiracy to defraud investors and violated Florida laws requiring securities registration and prohibiting unfair business practices.
Sean Mason, an attorney at Scott + Scott who is representing crypto investors in the EMAX case, said investors have used Florida’s unfair trading law to target crypto promoters in pending lawsuits.
“To be successful, they would need to establish a deceptive act or unfair practice, and that it caused actual damage,” Mason said.
Additional reporting by Abhinaya Vijayaraghavan in Bengaluru and Judi Godoy in New York; Editing by Noelene Walder, Anna Driver, and Matthew Lewis
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