Why Celebrities Are Facing FTX-Related Lawsuits

Making Sense of the FTX Bankruptcy

Understanding the collapse of FTX, we must start at the moment the engines began to sputter. After Sam Bankman-Fried (SBF) and Gary Wang founded FTX Cryptocurrency Derivatives Exchange in May 2019 as a trading firm, it flourished, reaching roughly $1 billion in revenue in 2021. FTX grew its customer base from 246,000 in 2020 to 3.1 million in 2021. FTX was an industry giant; its founder was the second-richest crypto billionaire, and its investors were household names in venture capital.

But the bigger they are, the harder they fall.

In November 2022, FTX filed for bankruptcy shortly after an influx of customer withdrawals earlier in the month. Long story short, then-CEO Bankman-Fried announced that FTX didn’t have enough assets in its reserve to meet customer demand.

Our team has followed the story extensively, publishing a post including the timeline to the FTX bankruptcy: Crypto Crash: FTX Files for Bankruptcy — Here’s What We Know. Unraveling the tangled web that FTX weaved is like watching a WWII fighter plane spiral down in flames, smoke billowing mercilessly from its engines.

Unfortunately, the failed crypto exchange didn’t go down alone when things went wrong.

Why Celebrities Are Facing FTX-Related Lawsuits

Several celebrities and A-listers, including NFL quarterback Tom Brady and comedian Larry David, face lawsuits for endorsing FTX. According to the class action complaint, the legal argument is that these celebrities touted the crypto exchange’s credibility, thus, were “responsible for the many billions of dollars in damages they caused.”

Understanding Influencer Marketing

It’s not so farfetched for A-listers, celebrities, or influencers to lend credibility to an organization or product. In reality, social media is peppered with endorsements, from weight-loss supplements to digital assets to the latest and greatest pet products. The following are a handful of successful teaming that prove influencer marketing can be incredibly successful:

• Travis Scott and McDonald’s
• Ryan Reynolds and Mint Mobile
• Shaquille O’Neal and Papa John’s
• Chrissy Teigen and Blue Apron
• Eva Longoria and L’Oreal

However, problems arise when the endorsed product or service fails to deliver or live up to the consumer’s expectations. Not having enough money in reserves for all of FTX’s customer withdrawals was unacceptable. This downfall not only put the crypto exchange in a negative light, to say the least, but it also was a bad look for the celebrities endorsing it.

Coming Under Regulatory Fire

Here’s the thing, regulatory noncompliance has erupted into a significant issue over the past several years, with the Federal Trade Commission (FTC) issuing warning notices to more than 700 companies, including Apple, BMW, Chevron, etc. Influencers have tightened their procedures, ensuring compliance with FTC standards to avoid fees and penalties.

But even with the proper disclosures, influential celebrities like Brady and David can still come under fire — and they have. Here’s why. If the product or service is defective and causes someone personal damages (i.e., financial loss), the person who endorsed it could be held responsible.

So, the lawsuits and legal accusations against Tom Brady and Larry David are legit, regardless of the outcome. Are they fair? We aren’t in that judgment seat, but we can provide a solution to this problem: influencer insurance.

How Influencer Insurance Provides a Solution

With more than 75% of marketers using influencer marketing as a strategy, this trend is here for a while. However, influencers are often in the line of fire, especially when products and services don’t unroll to the marketplace as planned.

Influencer lawsuits can be a major headache for influencers and their advertisers alike. Fortunately, influencer insurance can protect influencers from the financial consequences of lawsuits arising from their advertising activities.

For example, we recommend content creators and influencers get a commercial insurance program — not only a personal insurance plan — containing protection from the following:

• Advertising exposures: This coverage protects against a claim for breach of contract from the advertising agent or brand.
• Publishing exposures: This portion protects against libel (defamation), copyright and trademark infringement, breach of confidentiality, negligent misstatements, and bodily injury (arising from content) —  particularly beneficial for influencers promoting health foods.
• Regulatory exposures: FTC investigation and defense costs can add up quickly, but this coverage protects against failure to disclose paid endorsement

Crisis management costs are also available; however, only brokers in the industry understand what exposures influencers genuinely face and how to stay protected. As a result, our Scale Social package is priced and explicitly structured for individual influencers and content creators. Here’s our application page to better understand what we provide.

Understanding the details of what coverage your company needs can be confusing. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you.

What to know more about influencer insurance? Talk to us! Please contact us at info@foundershield.com or create an account here to get started on a quote.