By: Matthew Bellavia

For decades, earning a star on the Hollywood Walk of Fame signified a celebrity’s cultural impact and longevity in the entertainment industry. Today, launching a crypto coin seems to be the modern equivalent—a digital marker of influence and status. Just as millions once flocked to Hollywood Boulevard to see their favorite celebrities’ names immortalized in terrazzo and brass, fans now collectively invest ridiculous sums of money into celebrity-backed tokens.

As quickly as these tokens appear, they commonly see massive price swings up or down—leaving fans and investors with empty wallets, much like a poorly received film that flops on opening weekend. However, these dubious investments attract more than just movie stars and social media influencers, including U.S. President Donald Trump and Argentinian President Javier Milei. The past decade has seen a surge in high-profile controversies including personal-brand crypto coins and broader blockchain project endorsements. While some of these ventures have been legitimate efforts to engage with Web3 technology, others have ended up as failures or outright scams. Many of these projects have led to lawsuits and penalties from the SEC and FTC, yet few have been legally classified as securities. Why is that?

The U.S. Securities and Exchange Commission (SEC) determines whether an asset is a security under the Howey Test, a legal standard established in 1946. Many celebrity-backed tokens exploit loopholes in this definition to avoid classification as securities, thus sidestepping strict SEC regulations and investor protections. However, beyond securities law, other legal frameworks, including consumer protection laws and fraud statutes, could provide additional safeguards for investors who lose money in these crypto projects. This article discusses how these tokens evade securities laws, examines other potential legal remedies, and considers whether future legislative developments could offer better protections for consumers.

Security Classification

When an asset is classified as a security, there are generally more requirements for registration and disclosure, as well as more fines and restrictions for non-compliance with the law. The Howey Test classifies assets as securities when they involve the following: (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, and (4) are derived from the efforts of others. Celebrity crypto coins often fall into a gray area—if they are purely community-driven, decentralized, and lack a central entity promoting profit expectations, they may not meet the Howey criteria. Specifically, their decentralization suggests a lack of a common enterprise, and their lack of any discernible cash flows or assets backing their valuation suggests no expectation of profits.

However, if these assets are marketed with promises of financial gains, heavily promoted by influencers or developers, and controlled by a centralized team that influences their value, regulators like the SEC could find they qualify as securities. One potential avenue away from security classification is providing “utility” beyond simply an expectation of profits. For example, rapper Iggy Azalea’s crypto coin is accepted as payment by a telecom startup, of which she is a co-founder. Other potential utilities could include access to exclusive content or participation in governance matters for coin holders. These projects might evade security classification, but still often implicate consumer protection and tort laws, especially when involvement fades and the coin’s value rapidly collapses.

Recent SEC Interventions

Despite efforts to exploit loopholes in the law, the SEC has acted against several high-profile celebrity-backed crypto projects. In 2022, Kim Kardashian was fined $1.26 million by the SEC for failing to disclose that she was paid $250,000 to promote EthereumMax. Similarly, in 2018, Floyd Mayweather and DJ Khaled were fined by the SEC for promoting Centra Tech, an initial coin offering (ICO) later found to be a scam. In both cases, the underlying crypto assets were deemed securities, obligating the celebrities to disclose all consideration paid for their promotion.

Could the Government Change the Rules?

Two active legislation proposals seek to clarify the gray areas of digital asset regulation. The Digital Asset Market Structure and Investor Protection Act (introduced in the U.S. House of Representatives in 2023) and the Financial Innovation and Technology for the 21st Century Act (passed by the U.S. House of Representatives in May 2024) both seek to separate the duties of the FTC and SEC with clear guidelines. Neither proposal has been enacted into law. Additionally, Congress has the power to strengthen consumer protection frameworks, to require more disclosures and regulations on celebrity endorsements of financial products. Moreover, several upcoming court cases could fundamentally change the regulation of crypto coins.

Any future government action is unclear under the new administration. In January 2025, President Trump issued an executive order titled “Strengthening American Leadership in Digital Financial Technology,” highlighting the importance of regulatory clarity and promoting innovation. President Trump’s policy decisions are likely influenced by the fact that, according to estimates from three analysis firms, the entities behind his personal crypto coin accumulated close to $100 million in trading fees in less than two weeks, despite the value of the coin dropping nearly 75% since his inauguration day. President Trump’s decision to release his crypto coin has sparked anger in the cryptocurrency world. If the current administration is serious about regulating cryptocurrencies, perhaps they should start looking within their own house.

The Future of Celebrity Cryptocurrencies and Investor Protections

While some celebrity-backed crypto projects are outright scams, others attempt to create legitimate ecosystems. The challenge lies in distinguishing between the two and ensuring investors are protected. Despite high-profile lawsuits and fines, many celebrity-backed crypto projects continue to exploit legal loopholes to avoid being classified as securities. However, securities law is only one piece of the puzzle. Strengthening consumer protection laws and fraud enforcement mechanisms could provide broader safeguards for retail investors.

The SEC has taken steps to increase enforcement, but unclear legal definitions still allow many crypto coins to operate in a gray area. Moving forward, investors should be wary of celebrity-endorsed tokens, as they often rely on hype rather than substance. Meanwhile, courts and lawmakers have the power to close the loopholes allowing these questionable projects to thrive, but their plans are uncertain. The next wave of crypto enforcement may bring sweeping changes, but for now, the legal battle over celebrity crypto coins and consumer protections remains ongoing.

#WJLTA #crypto  #celebritytokens #securities