Network of YouTube financial influencers hit with class action suit for pumping up FTX

by user

Here’s a case study in how not to win friends and influence people. 

A prominent group of YouTube financial influencers have become the targets of a class action lawsuit accusing them of leading their viewers into financial ruin by uncritically promoting failed crypto exchange FTX in return for lucrative sponsorship deals.

The suit, filed on Wednesday in federal court in Miami, argues that the network of influencers played a key role in drawing customers into using FTX by convincing them it was a genuinely safe platform in a sea of fraudulent operators and crypto scams.

“FTX turned to celebrity and social media endorsers to position itself as the ‘safe’ option among cryptocurrency exchanges,” the suit read. “FTX’s paid endorser program was clearly designed to use the positive reputation associated with specific YouTube and other social network influencers to convince consumers that FTX was a safe place to buy and sell cryptocurrency.” 

The suit names well-known YouTube influencers Kevin Paffrath, Graham Stephan, Andrei Jikh, Jaspreet Singh, Brian Jung, Jeremy Lefebvre, Tom Nash, Ben Armstrong and Erika Kullberg as defendants. It also includes the Creators Agency, a talent management firm and digital ad network run by Kullberg and her husband, that helped put together the group’s lucrative sponsorship deals with FTX.

Paffrath,  a 31-year-old YouTube star with 1.87 million followers to his real estate and financial advice page Meet Kevin, said while he felt bad people lost money, he didn’t think he should be held responsible for the risk inherent in any investment.

“I lost of money as well on BlockFi — more than I ever made from FTX frankly — but do I blame the guy who suggested I invest in BlockFi? No. I just put on my big boy pants and accepted the reality of what had happened,” he said.

Messages left with the other defendants weren’t immediately returned.

The group of influencers never made much secret that they were being paid to promote FTX on their channels before the crypto exchange collapsed amid major fraud allegations late last year. 

Some have claimed to have had six figure deals with FTX in exchange for promoting it. Some of the deals involved the influencer receiving commissions for each customer they sent FTX’s way. Others were paid fees for simply mentioning the service on their broadcasts.

After FTX’s demise, the YouTube influencer group was quick to issue online mea culpas acknowledging that they had made mistakes in uncritically promoting the service. They also rushed to remove old videos in which they sung the platform’s praises.   

FTX filed for chapter 11 bankruptcy protection on Nov. 11, freezing up deposits for hundreds of thousands of customers. The company’s founder, Sam Bankman-Fried, has since been charged criminally with fraud for misappropriating hundreds of millions of dollars in customer deposits.

While no one has alleged any criminal wrongdoing on the part of the influencers,  legal experts say it is possible that those who actively promoted the business could come under scrutiny.

The Securities and Exchange Commission has in the past aggressively pursued cases involving promoters under anti-touting laws, levying large fines against celebrities like Kim Kardashian, Floyd Mayweather and Steven Seagal for promoting cryptocurrencies without properly disclosing they had been paid.

The class-action suit was brought in the name of Edwin Garrison, an FTX customer from Oklahoma, by the Moskowitz Law Firm in Florida and Boies Schiller Flexner LLP, the New York-based law firm headed by famed litigator David Boies. 

The same firms have filed a similar class action lawsuit on behalf of Garrison against FTX’s paid celebrity endorsers, like former NFL quarterback Tom Brady, supermodel Gisele Bundchen, comedian Larry David and NBA star Stephen Curry. They have also filed class action suits against FTX itself and its founder, Sam Bankman-Fried.

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