SEC warns celebrities endorsing new virtual currencies could be breaking laws

The Securities and Exchange Commission has taken the first step to head off recent the trend of celebrities endorsing new virtual currencies, warning that they could be breaking laws.

Entrepreneurs have been issuing the digital currencies through so-called initial coin offerings, or ICOs, that have become largely unregulated method of fund-raising for technology projects.

This year has seen some 270 projects raise more than $3 billion through the sale of new currencies to investors. The vast sums of money have attracted celebrities, like the socialite Paris Hilton and the rapper the Game, who have promoted particular projects, generally in exchange for a payment of some sort.

In a statement released Wednesday, the SEC said that celebrities who promoted coin offerings could be violating multiple laws, including antifraud regulations and rules that govern investment brokers.

In language that hinted SEC resort to enforcement action against these celebrities, the statement promised that the agency would ''focus on these types of promotions to protect investors and to ensure compliance with the securities laws.''

The regulatory warning comes after an article in The New York Times in the past week about such celebrity endorsements, which focused on a troubled project, known as Centra, promoted by the boxer Floyd Mayweather and the rapper DJ Khaled.

Floyd Mayweather's and DJ Khaled's endorsements of new digital coin sales may be illegal if the celebrities failed to disclose how they are benefiting, the Securities and Exchange Commission said.

"Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments," the commission said. "These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement."

According to the Times, Mayweather a boxer has promoted three tokens, while rapper DJ Khaled, Paris Hilton and soccer player Luis Suarez have all endorsed new coin sales.