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A new class action targets a world-renowned footballer, US prosecutors ask Changpeng Zhao to stay put until sentencing, and Filipinos are warned to stay away from Binance.
Three US crypto investors have filed a class action lawsuit against Portuguese footballing legend Cristiano Ronaldo, and are seeking to hold him liable for more than $1bn in damages.
In a 129-page complaint, the three plaintiffs allege that Ronaldo, 38, conspired with Binance to promote and sell unregistered securities in violation of state laws.
The three plaintiffs are residents of Florida, Colorado and California respectively, and the complaint was filed in Florida.
Seven counts are alleged in total, including securities law violations, investor protection offences, deceptive and unfair trade practices and violations of consumer protection law.
Ronaldo 'should have known' better
The class period begins in 2022, when Ronaldo signed a multi-year deal with Binance and launched his first non-fungible token (NFT) collection.
Ronaldo was a paid spokesperson for Binance’s global advertising campaign, and his promotions were published on TV, websites and social media accounts.
The complaint alleges that Ronaldo “should have known” that he was soliciting investments in unregistered securities, and that he was aiding and abetting Binance's fraudulent business practices.
Moreover, the complaint adds that Ronaldo knew his promotions would target consumers who were unfamiliar with the risks of crypto-assets and the Binance platform.
“I worked closely with Binance to develop a collection that gives me a special way to not only connect with my fans, but to bring them into the new game,” Ronaldo told FinTech Magazine in November last year.
“Together with Binance, I want to welcome fans into Web3 through the world of NFTs.”
In total, Ronaldo’s promotions were broadcast to 849m followers across Facebook, Instagram and Twitter, including more than 100m Binance customers and 1.47m Binance US customers.
“To the moon with Binance,” Ronaldo said in one such promotion.
Plaintiffs’ counsel claims precedent
The plaintiffs’ lawyers argue that the securities laws Ronaldo has violated have been clarified by other crypto-asset cases over the past few years.
In the 2022 case of Wildes v BitConnect, an Eleventh Circuit appeals court established that “solicitation” of crypto-asset securities investments need not target specific, potential purchasers.
Instead, simply “urging people to buy [crypto-assets] in online videos” was seen as a “broadly disseminated sales pitch”, and therefore a violation of the 1933 Securities Act.
Similarly, the complaint adds that the Securities and Exchange Commission (SEC) has charged numerous celebrities with unlawfully promoting crypto-asset securities, and has settled with many of them.
In March, the SEC settled with a group of eight US celebrities who had illegally touted the Tron (TRX) and BitTorrent (BTT) tokens.
The group included musicians Akon, Ne-Yo and Soulja Boy, actress Lindsay Lohan and YouTuber Jake Paul, and nearly all settled for a combined fee of $400,000.
John Reed Stark, former head of internet enforcement at the SEC, said the “stark reality” is that any celebrity who promotes crypto-assets may be flouting securities laws.
“Shilling NFTs, crypto-trading platforms and other dangerous Web3 variants is a material threat to investors,” he said.
“Moreover, the NFT marketplace seems wholly rigged. Market manipulation of NFTs appears not only rampant and tolerated but also encouraged.”
Changpeng Zhao should stay put
Following Binance’s record-breaking settlement with US regulators last week, prosecutors’ attention will now turn to Changpeng Zhao, former CEO of Binance, who also pleaded guilty to criminal charges.
In a new court filing, Department of Justice (DOJ) prosecutors have reiterated their view that Zhao should not leave the US prior to his sentencing hearing, which is scheduled for February 2024.
In the meantime, Zhao is in an “unusual” position, the DOJ said. As a citizen of Canada and the United Arab Emirates (UAE) who lives in Dubai, the DOJ said Zhao would ordinarily be detained prior to sentencing, particularly as the UAE has no extradition treaty with the US.
However, in this case, Zhao “voluntarily appeared” in the US to face justice, and so was given the “exceptional recommendation” to remain free until sentencing.
Despite facing a custodial sentence, Zhao’s defence has argued that he presents no flight risk because his sentence will be “brief”.
In response, the DOJ said that guidelines indicate that Zhao is likely to face 18 months in prison, although the government is “free to argue” for the maximum sentence of ten years. (Zhao pleaded guilty to one count of violating the Bank Secrecy Act.)
With these factors taken into account, the DOJ reiterated its recommendation that Zhao should remain in the US until sentencing.
“Mr. Zhao is not simply a citizen of the UAE, but has favored status there, having obtained citizenship by invitation,” the filing notes.
“Given these connections, should Mr. Zhao decide not to return to the United States to face an uncertain sentence, there is no reason to believe that the UAE would hand him over.”
Stay away from Binance, says Philippines SEC
Finally, this week the Philippines Securities and Exchange Commission (SEC) published an advisory that warns investors to stay away from Binance.
The regulator noted that Binance is not authorised to sell or offer securities to the public in the Philippines, nor does it hold any licence or have any companies incorporated in the Philippines.
Although Binance may be authorised as a securities broker or dealer in other jurisdictions, the SEC said, there are three criteria that must be met if a company wishes to offer securities in the Philippines:
1. The securities being offered must be registered with the SEC.
2. The securities must be issued by a corporation or a licensed dealer, both of which should be registered in the Philippines.
3. The issuer must possess a secondary licence to sell or offer securities directly to the public.
Those who act as salesmen, brokers, dealers, agents or promoters of Binance may be held criminally liable, and can be penalised with a fine of up to 5m pesos ($90,000) or a prison sentence of up to 21 years.
