A multi-million dollar class action lawsuit filed against a company accused of financial fraud has ensnared two celebrity influencers and should be a wake-up call for the booming influencer marketing industry.

Boxing superstar Floyd Mayweather and music mogul DJ Khaled, who have more than 50m followers between them on Instagram and Facebook, are named in a lawsuit that has been filed by investors who lost money investing in a cyptocurrency venture called Centra Tech.

Centra Tech raised $32m through a so-called initial coin offering (ICO) but the founders of the venture were later arrested and charged with a number of federal crimes including securities and wire fraud. Now, Centra Tech investors want their money back and are taking civil action.

Mayweather and Khaled promoted Centra Tech’s ICO to their followers and were purportedly paid to do so as part of a pay-to-post arrangement common in influencer marketing. Khaled, a music producer and record executive, told his followers that Centra Tech was a “game changer” and Mayweather, the highest-paid athlete in 2017 with estimated earnings of $285m, went so far as to tell his followers, “You can call me Floyd ‘Crypto’ Mayweather from now on.”

The plaintiffs in the lawsuit, who apparently lost most if not all of their money, aren’t claiming that Mayweather and Khaled knowingly participated in the fraud, but they are effectively claiming that if the celebrity duo hadn’t used their influence to promote it, the fraud wouldn’t have been so successful.

An unusual but important case

The most talked-about legal topic in influencer marketing is disclosure, and the Centra Tech lawsuit raises this issue as neither Mayweather or Khaled disclosed that their posts promoting Centra Tech were paid for. That will likely factor into the lawsuit as the plaintiffs seek to convince the courts that
Mayweather and Khaled should be held accountable to some extent for investor losses.

The obvious argument that is likely to be made: if the followers of two successful men who routinely flaunt their wealth on social media didn’t know that they were being paid to promote Centra Tech, some might have made the assumption that the company’s ICO was offering them an opportunity to invest in something Mayweather and Khaled truly believed in.

dj khaled
DJ Khaled – image via Meghan Roberts on Flickr

Obviously, there is a difference between hyping a company that turns out to be a financial fraud as it seeks to raise funding and promoting a legitimate company’s products. Most influencers are doing the latter, not the former.

But that doesn’t mean that the Centra Tech lawsuit should be ignored. To the contrary, it highlights the fact that while it’s easier than ever for individuals to cash in on their influence, it’s also easy for them to be dragged into situations that can expose them to serious legal headaches.

Case in point: allegations that some influencers in the beauty space are being paid not just to promote brands but to bash competitors of the brands they’re promoting. If such claims are proven to be true, influencers engaging in such activity could easily find themselves facing lawsuits claiming damages far
in excess of what they’re being paid.

After all, in some cases, if a prominent influencer was to untruthfully criticize a brand or its products, it could conceivably cause hundreds of thousands if not millions of dollars in direct and indirect damage.

Influencers are also facing increased legal risk as more and more of them launch their own ventures. That’s because there are any number of scenarios under which their promotions of their companies could open the door to legal action.

Big targets

The Centra Tech lawsuit makes it clear that influencers are no longer flying under the radar. The exorbitant amounts some of them are paid are increasingly publicized, as are the unsavory practices some in the industry are said to be engaging in.

While it remains to be seen whether Floyd Mayweather and DJ Khaled will be forced by a court to pay for their promotion of Centra Tech, the multi-million dollar class action lawsuit they’re entangled in brings into focus the risks influencers face when they lend their names to companies, products and
initiatives. Going forward, they would be wise to more carefully consider those risks when they decide what to promote, and how.

Learn more

Explore Influencer Intelligence, the influencer tool, part of the Econsultancy Group.