Another week, another celebrity sued for promoting crypto companies. In this case, celebrities like Jimmy Fallon, Justin Beiber, and Madonna are alleged to have been involved in a class action over promoting Bores Ape Yacht Club (“BAYC”) NFTs. As you might know, we recently examined Canada’s misleading advertising laws in our FTX article. This case revolves around celebrities’ social media disclosures (or lack thereof) about their relationship with BAYC. We will examine both Canadian Competition Bureau’s (the “Bureau”) and US Federal Trade Commission’s (“FTC”) laws regarding influencers and social media disclosures.
What is BAYC?
BAYC is an NFT collection created by blockchain company Yuga Labs Inc (“Yuga”) and cryptocurrency exchange Moonpay. The BAYC NFTs feature the same cartoon ape photo. Each NFT shows the ape with different accessories. For example, in some BAYC images, the ape wears sunglasses; others show the ape wearing different hats or sweatshirts. As a result of the celebrities who publicized their purchase of a BAYC and became “part of the club”, BAYC became a status symbol for anyone who could afford to buy a BAYC. Jimmy Fallon reportedly bought his BAYC for ~ $216,000.00, while Justin Bieber reportedly paid ~ $1,300,000.00 for his.
The Complaint
The complaint alleges that celebrities promoted BAYC without disclosing that they were being paid. If the celebrities had disclosed they were paid by Yuga for promoting BAYC rather than purchasing BAYC themselves, the Plaintiffs wouldn’t have been as eager to purchase a BAYC (Section 230).
The most notable example is Jimmy Fallon. Specifically, on an episode of the Jimmy Fallon Show, he had a supposedly “organic” discussion about his BAYC purchase. However, he did not disclose he was an investor in Yuga and Moonpay. He continued to post about his BAYC on social media without disclosing his financial interest in BAYC, Yuga, or Moonpay.
Another allegation suggests that Bieber posted his purchase of a BAYC after being gifted it by Yuga in exchange for promoting the brand.
The Law for Influencers in Canada
Although this case is being brought under California competition law, it serves as a reminder that the Bureau has published guidelines for appropriate influencer marketing practices, the “Deceptive Marketing Practices Digest” (the “Digest”). While the Digest is not law, it guides how the Bureau would apply influencer marketing practices in the context of the Competition Act.
The overarching principle of the Digest is that influencers must disclose material connections with companies whose products or services they promote. According to the Bureau, a material connection is a relationship between an influencer and a company that “has the potential to affect how consumers evaluate the influencer’s independence. This is often something of value that the influencer receives from the company, such as a monetary payment, free product, discounts, other benefits, or a personal or family relationship.”
Both influencers and companies could face penalties from the Bureau for misleading and deceptive marketing practices because it is not clear to consumers that influencers have a material connection to the company they are posting about. Our previous article discussed these relevant Competition Act sections in more detail.
In addition to the Bureau’s guidance, it is also pertinent for Canadian influencers and companies to be aware that if their advertisements have the potential to reach US consumers, they also have to comply with the FTC’srequirements for social media disclosures. These requirements have been codified in Section 5 of the FTC Act.
The majority of the FTC’s requirements remain consistent with the Bureau’s. However, the FTC’s guidance delved into some more detail regarding specific social media activities, such as:
- If an endorsement is in a temporary picture on a platform like Snapchat and Instagram Stories, the disclosure must be superimposed over the image to make sure viewers have enough time to notice and read it;
- If an endorsement is in a video, the disclosure should be in the video and not just in the description of the video;
- If an endorsement is said on a live stream, the disclosure should be repeated so viewers who only see part of the stream will see the disclosure;
- The disclosure should be in the same language as the endorsement itself and,
- Influencers should not solely rely on a platform’s disclosure tool (such as Instagram’s “Paid Partnership” tag).
Under the FTC Act, companies and influencers can be subject to civil penalties of up to $46,517 per violation.
Conclusion
If the allegations in the complaint are true, the forenamed celebrities could face financial penalties. Other influencers and celebrities who had financial interests in Yuga or were gifted BAYCs and did not include proper material connection disclosures could also be faced with fines from competition bodies like the Bureau and FTC.
This situation serves as a reminder. Even if an influencer thinks they are being genuine when promoting a product on social media, they must include proper disclosures stating whether they have a financial interest in the company and receive a product as a gift. Ensure your company’s influencer marketing activities comply with consumer protection laws.
Reach out to zack@gmelawyers.com or jack@gmelawyers.com for expert guidance. Do not risk legal issues – protect your brand and reputation today.
