Building Wealth Doc's note: Americans are investing in great numbers – and with more money – than ever before. That means more people than ever are sharing their so-called "expert" advice.
But beware...
Today, I'm sharing an essay from Kim Iskyan, originally published in American Consequences, where he explains the dangers of investing in what famous folks advertise...
If investor, carmaker, would-be astronaut, and all-around crazy-man Elon Musk... or former basketball player Shaq... or famous-for-being-famous person Paris Hilton, or TikTok stars Charli and Dixie D'Amelio (if you, like me, haven't heard of them, try asking your kids or grandkids)... was, say, jumping off a bridge... would you do the same?
You probably remember your mom's or dad's sage reprimand to 10-year-old you about jumping off bridges after you followed the cool kids and succumbed to peer pressure to play hooky, puff a cigarette behind the gym, or spit-ball the math teacher's chalkboard.
Today, despite the draw of celebrities – who, after all, are the ultimate cool kids – you'd likely say: No, I'm not jumping off the bridge.
But what if one of those cool kids, or baseball star A-Rod, or YouTuber Logan Paul, or cheesy-'80s-flick, former-martial-arts-maven Steven Seagal – all of whom have also done this sort of thing – said he was supporting a particular stock... or an ICO (or initial coin offering, which is a way some cryptocurrencies have raised funding)... or a SPAC (a traded shell company set up as a "special purpose acquisition company" to acquire an operating business)... or a cryptocurrency coin.
Would you jump off the bridge – and buy it?
The SEC (Is Trying To) Keep You From Jumping
The Securities Exchange Commission ("SEC"), the securities market regulator in the U.S., is concerned that you might be tempted. It's worried that investors will mistake famousness for investment-savvy and follow celebrities (athletes, performers, viral YouTube folk, Instagram accounts with a lot of followers, reality-TV "stars," and people who you've heard of simply because you've heard of them) off the investment bridge.
Back in November 2017 – at the peak of a crypto boom that featured hundreds of fly-by-night ICOs raising capital from lambs-to-the-slaughter small speculators – the SEC's Office of Investor Education and Advocacy warned investors to not put their money where the mouth of their favorite celebrity was. The SEC explained...
Celebrities, from movie stars to professional athletes, can be found on TV, radio, and social media endorsing a wide variety of products and services – sometimes even including investment opportunities. But a celebrity endorsement does not mean that an investment is legitimate or that it is appropriate for all investors. It is never a good idea to make an investment decision just because someone famous says a product or service is a good investment. [That's the SEC's emphasis.]
On the same day, it issued a similar statement about celebrity-endorsed ICOs in particular, pointing out that "celebrity endorsements may appear unbiased, but instead may be part of a paid promotion." (The SEC then effectively shut down the ICO market, contending that many coins were securities, and thus subject to stock-like regulation.)
More recently, on March 10 of this year, the SEC dusted off its statement and updated it for SPACs, again warning – with a marked lack of originality in both phrasing and bolding – that "It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment."
It sounds obvious, doesn't it? (We could say the same thing about anything that an investment adviser says is a good investment.) But perhaps it's not...
When the Cool Kids Tell You What to Buy
When most people see Taylor Swift advertising Diet Pepsi, or actress Eva Longoria hawking L'Oreal Paris Revitalift Triple Power Moisturizer, or actor Matthew McConaughey moodily driving a Lincoln Aviator Grand Touring (that's a car, not a fighter jet) for the camera, they're aware that these celebrities are being paid to advertise a product.
When we see people like that on TV – or the Internet, or Instagram, or Facebook, or a billboard, or wherever you experience one of the estimated 6,000 to 10,000 marketing messages the average person is bombarded with each day – we know it's not a public service... The cool kids aren't really letting us in. There's no pretense that they're actually, honestly, telling us which caffeinated diet beverage, face cream, or car, is the best one for our needs.
And no one's pretending that they arrived at their conclusions through rigorous personal research and analysis... Did TSwift do a blind taste-test of Diet Pepsi, Diet Coke, Diet Dr. Pepper, and Diet RC Cola? Did Eva review the Consumer Reports ratings on which moisturizer offers the best value per ounce without leaving you feeling greasy, and slather them on her own skin? Did would-be Governor of Texas McConaughey cruise through a purple cloud, testing the acceleration, gas mileage, and airbag deployment speeds of overpriced non-Lincoln high-horsepower hybrids?
No... They're telling us what to buy because that's how marketing works.
The Steven Seagal Cautionary Tale
So when tennis icon Serena Williams publicly backs a SPAC – one that wound up taking public a digital manufacturing firm – why would we take her investment acumen any more seriously than we take Tay Tay's insight into diet colas? It's safe to say that Ms. Williams knows a lot less about full-stack 3D metal-printing than she does about forehands.
At least, though, Serena and the multitude of other celebrity SPAC backers have stayed on the right side of the SEC. Perhaps they've learned from the cautionary tale of aging, straight-to-video (back when video was a thing) actor Steven Seagal.
In 2018, Seagal urged followers of his social media accounts to not "miss out" on the ICO of Bitcoiin2Gen (not a typo). He also promoted the coin via a press release titled "Zen Master Steven Seagal Has Become the Brand Ambassador of Bitcoiin2Gen."
There's no particular reason that anyone should have put any more faith in that advice than when he hawked Australian beer Carlton Dry (but then again, Seagal isn't much of an actor)?
For pumping Bitcoiin2Gen – according to a February 2018 press release proclaiming "The inspiration of Bitcoiin2Gen is to make a superior or more advanced version of Original Bitcoin" – Seagal was promised $250,000 in cash and $750,000 in tokens.
But in his promotions, Seagal – who's had a Russian passport since 2016, and whose life path has taken some very strange turns – didn't disclose that he was being paid. In February 2020, he was forced by the SEC to pay $314,000 "in disgorgement and penalties for violating anti-touting provisions of federal securities laws."
Bitcoiin2Gen today has a total market cap of $34,262 (also not a typo, or missing any zeros), so apparently, Seagal's support didn't help much.
Enter the Influencers
More recently, social media influencers – people who build up a presence on platforms like Instagram or Twitter, and a reputation and credibility on a particular topic – have gone the Seagal route, albeit with the right disclosures.
Just last month, Kim Kardashian West – who built a $1 billion net worth by leveraging fame-for-being-famous into a beauty products company, a fashion brand, reality TV income, and endorsements – posted an ad on Instagram for EthereumMax.
That's a crypto that claims to aim to "bridge the gap between the emergence of community tokens and the well-known foundational coins of crypto." It doesn't have a white paper, which is as basic to a crypto as a prospectus is to a stock, although CNBC reported that the EthereumMax team is working on "something special."
According to CoinMarketCap, it has a "fully diluted" market cap of $56 million. In Kardashian West's Instagram story – visible to her 228 million followers and anyone else interested – "#ad" was written at the bottom of the screen. One estimate suggests that Kardashian charges around $1.4 million per Instagram post.
And she probably does about as much due diligence on what she pitches as TSwift does taste-testing of diet colas. But at least she's not pretending otherwise... and unlike Seagal, but like Serena, she's upfront about her motivations.
Where We Are Now
It used to be that basketball players just dribbled... actors appeared on the big screen... and regular people who aspired to be on TV were waiters in Los Angeles. The biggest and most visible celebrities endorsed Nike or McDonald's or Coca-Cola... or Wheaties (the former Bruce Jenner) or road rolling equipment (1950s actress Doris Day, in an unusual match of spokesperson and product) or roach traps (like Muhammed Ali did).
Marketing has come a long way. Michael Jordan launched a line of sneakers with Nike that continues to generate close to $4 billion in revenues annually. Many celebrities have created businesses around products with which they're closely associated like actress Gwyneth Paltrow did with Goop (which offers "cutting-edge wellness advice" and a "curated shop of clean beauty, fashion and home"). A "personal care brand," The Honest Company, co-founded by actress Jessica Alba, went public in May at a market valuation of just over $400 million.
With a few partners, in 2013, actor George Clooney launched a tequila brand that subsequently sold for upward of $700 million. The deal made him the highest-paid actor in 2018 – even though he didn't appear in a single movie all year.
Celebrities have long had their hands in our pockets, one way or the other – while they've urged us to join them in jumping off a bridge. We normal people... who still want to be like the cool kids, even the urges from when we were 10 years old show up in different ways... still want some of that sheen to rub off on us.
So we wear the Air Jordans and eat the Big Macs and light the "This Smells Like My Vagina" candle from Goop (that's a real thing). And sometimes, we buy the SPACs and cryptos. But as the SEC warns, just because they say it's a good buy, doesn't mean it is... just because they (say they) are jumping off a bridge, doesn't mean you should, too.
Regards,
Kim Iskyan