Research Paper on Financial Regulations

The Fallout from the FTX-Tom Brady Partnership: Legal Implications and Industry Impact Student’s Name Institutional Affiliation Course Name and Code Professor’s Name Date Table of Contents TOC \o "1-3" \h \z \u 1. Introduction PAGEREF _Toc172928161 \h 32. Detailed Description of the Current Event PAGEREF _Toc172928162 \h 4Background of FTX PAGEREF _Toc172928163 \h 4Tom Brady’s Involvement PAGEREF _Toc172928164 \h 4Legal and Financial Fallout PAGEREF _Toc172928165 \h 53. Relevant Law and Regulations PAGEREF _Toc172928166 \h 7Securities and Exchange Commission (SEC) Regulations PAGEREF _Toc172928167 \h 7The Federal Trade Commission PAGEREF _Toc172928168 \h 74. Analysis of the Current Event PAGEREF _Toc172928169 \h 85. Conclusion PAGEREF _Toc172928170 \h 10References PAGEREF _Toc172928171 \h 11 The Fallout from the FTX-Tom Brady Partnership: Legal Implications and Industry Impact 1. Introduction The crypto exchange previously owned by Sam Bankman-Fried had started as FTX and rose to fame before crashing into a major scandal. Launched in 2017, FTX was noted for such attributes as innovation and ease of usage, which resulted in the company’s highlighted investments and partnerships (Senz, 2023). It reached $31.7 billion by 2021, thanks partly to celebrity endorsements like Tom Brady, a quarterback in the National Football League, and Gisele Bündchen, a supermodel (Reuters, 2022). For instance, Brady, who was actively involved as an ambassador for FTX, was given $30 million worth of FTX stock to help market it (Carlisle, 2024). However, the company fell into decline when it was discovered that FTX had been embezzling funds, which led to its collapse in November 2022 (Coney, 2024). Subsequently, emerging investigations revealed more alleged unlawful schemes and embezzlements, prompting federal fraud charges against Bankman-Fried (Silverman, 2023). Holding losses of billions of investors’ funds, FTX also dragged celebrity promoters such as Brady and Bündchen into litigation, as they were accused of negligence while endorsing FTX without sufficient research of the company (Reuters, 2022). This paper aims to discuss the outcomes of the FTX-Tom Brady affiliation, with particular attention paid to the consequences of financial regulation and responsibility (Hern, 2022). The paper will discuss how the failure of FTX, coupled with the celebrity endorsement by Tom Brady, highlights critical concerns in the regulation of virtual currencies and celebrity endorsements. 2. Detailed Description of the Current Event Background of FTX Crypto exchange FTX was established in 2017 by its chief executive officer Sam Bankman-Fried and co-founder Gary Wang. The company's business model relied on the ability to offer spot trading, derivative contracts, and tokenized equities for digital assets (Hern, 2022). Aiming to provide customers with something new and unique, FTX offered additional tools for trading, including leverage trade and derivatives instruments, which attracted both private traders and institutional clients (Silverman, 2023). Its design focused on usability and depth, providing powerful trading tools and a robust infrastructure. Tom Brady’s Involvement The Brady partnership with FTX was major and tactical as the American football quarterback signed into the cryptocurrency exchange in 2021. Thus, as an FTX ambassador, Brady was influential in attracting attention and establishing trust in the platform (Griffith & Yaffe-Bellany, 2023). His responsibilities included being in television advertisements and promotions and even publicly supporting FTX (Hern, 2022). The attraction of Brady and the scope of the platform's coverage indicated the company’s attempt to target retail and institutional investors to become a dominant player in the emerging field of cryptocurrencies. The conditions of Brady’s agreement with FTX were significant and topped on the simple nature of this endorsement. Sources suggest that Brady received $30 million in FTX stock as part of his position (Kapoor, 2023). According to Kapoor, 2023, this compensation was related to promoting the platform in public events and meetings and using social media influencers to present the platform's marketing through word of mouth. The financial aspect was evident in the importance of FTX, seeing the worth of enrolling Brady and the potential of his endorsement to bend the firm in the brand's contender map. Nevertheless, FTX’s failure in November 2022 negatively affected Brady’s finances. Due to the cryptocurrency exchange's bankruptcy, the stock Brady received was practically worthless, resulting in a more significant loss. The $30 mission was undeniably wasted by FTX stock, given that the firm lost value, which consequently caused substantial losses to Brady (Reiff, 2023). The implications of the fallout were not confined to mere dollars and cents; Brady and other celebrity endorsers got themselves in lawsuits by investors who demanded their monies back (Quiroz-Gutierrez, 2023). Regulatory demands concerning manipulated or false advertisements were raised about Brady and other celebrities who promoted FTX without proper due diligence, concerning the legal liability of endorsers to verify the credibility of the promoted products (Reiff, 2023). This legal scrutiny further amplified the cost in personal and monetary terms for Brady to associate with FTX, turning what was previously perceived as a commercial win into a dangerous branding association. Legal and Financial Fallout FTX products were promoted by superstars like Tom and Gisele, Shaquille O'Neil, and Naomi Osaka; the customers also sued other celebrities for making investments through the FTX site and lost their money (Syme, 2023). The lawsuits claim that despite being influential personalities contracted to push for the use of the platform, they glossed over research or spent minimal time investigating the authenticity of the FTX’s services offered (Quiroz-Gutierrez, 2023). The celebrities to whom the endorsements were made are accused of helping to build trust in FTX and attracting investors to the exchange, and hence, they should be made to bear the consequences when the exchange fails, according to the plaintiffs (Silverman, 2023). These legal actions are increased to know if the celebrities acted in violation of consumer laws and if they had a legal obligation to screen the products that they endorsed fully. After FTX’s collapse, eight legal procedures were joined and transferred to the Southern District of Florida federal court(NBCsports, 2023). These cases incorporate well-known defendants, such as Br...