Victims or chumps? Tom Brady lawsuits raise questions over celebrity endorsements

Patriots football fan Michael Livieratos is doing something that once would have been considered a sacrilege in New England: He is suing former Patriots quarterback Tom Brady. Livieratos, 56, filed a lawsuit seeking unspecified damages from Brady and “Shark Tank” co-host Kevin “Mr. Wonderful” O’Leary for their marketing of FTX and crypto currency.

Livieratos is essentially arguing a quarterback sneak ruined him after he invested virtually his life's savings into FTX before its collapse. Putting aside his decision to base financial decisions on commercials made by an athlete, Livieratos' lawsuit raises difficult questions over the liability of celebrities who become paid spokespersons for companies.

Brady is not alone; other celebrity endorsers are being sued, too, including his ex-wife, supermodel Gisele Bundchen.

There is no question that celebrities can sell out their fans by pushing products based on little knowledge or competency. However, the question for consumers is whether being a chump is the same as being a victim.

Livieratos told the Washington Post that “as a New England Patriots fan my entire life, you can imagine the influence that Tom Brady would have.” One can certainly imagine how a celebrity could prompt you to buy a car to look as cool as, say, Matthew McConaughey. However, few of us would bet our life's savings on his financial advice. Indeed, if my Lincoln turned out to be a lemon, I would not blame McConaughey that the car did not prove to be "my sweet spot.”

Indeed, McConaughey personifies the problem in these lawsuits. He says a handful of words in every commercial, and virtually nothing about the Lincoln’s capabilities. In one, he simply grins before falling backwards, fully clothed, into a pool. You had to look closely to know he was selling cars — McConaughey was selling McConaughey, and the car was merely an add-on.

No one thought McConaughey took apart the car or compared other cars before driving away a truckload of money for the commercials. The question is whether one should assume Brady did any more research before telling people to take the plunge into crypto currency.

Yet, according to the complaint, O’Leary and Brady “promoted, assisted in, and actively participated in” FTX’s “offer and sale of unregistered securities.” He is accused of “aggressively marketing” the allegedly “deceptive” practices of FTX.

Brady, along with his ex-wife, took an equity interest in FTX last year and agreed to donate millions of dollars to FTX’s effective altruism mission. Notably, it appears that Brady and O'Leary may have lost money on the company as well.

An earlier class-action named Sam Bankman-Fried, Tom Brady, Gisele Bundchen, Stephen Curry, Golden State Warriors, Shaquille O’Neal, Udonis Haslem, David Ortiz, William Trevor Lawrence, Shohei Ohtani, Naomi Osaka, Lawrence Gene David and Kevin O’Leary as defendants.

The class-action alleges that "some of the biggest names in sports and entertainment have either invested in FTX or been brand ambassadors for the company. A number of them hyped FTX to their social media fans, driving retail consumer adoption of the Deceptive FTX Platform.”

Litigants argue that these celebrities helped shore up a “house of cards” operated by a “Ponzi scheme where the FTX Entities shuffled customer funds” to maintain the fraud.

States like Texas also are investigating Brady and others for their role in the allegedly fraudulent company.

Brady has hired Latham and Watkins to defend him in these lawsuits.

I am highly skeptical of the theories of liability. There is no evidence that these celebrities knowingly said anything that was false. These commercials also present a different issue from actor Ryan Reynolds pitching Mint Mobile as an owner; he is not just pitching but producing the product.

Celebrities routinely pitch products, from hair gel to hamburgers. They read from scripts, and few would believe they are experts in the products they shill.

These commercials clearly include a personal endorsement that they are good and proper. Tom Selleck can be seen nightly on television pitching AAG with the enthusiasm of a carnival barker: "And let me tell you something: I wouldn't be here if I thought reverse mortgages took advantage of any American senior. Or worse, that it was some way to take your home."

There is no indication that AAG is fraudulent, or that Selleck is wrong in claiming that "I believe I know what's what" about reverse mortgages. However, even if Selleck were to shrug off his "what's what" as a "whatever" at some later date, his credibility — not his liability — should be the issue.

Nevertheless, some celebrities have settled analogous cases in the past. In 2018, the Securities and Exchange Commission (SEC) pursued former boxing champion Floyd Mayweather Jr. and music producer DJ Khaled for their roles in pitching initial coin offerings. They agreed to pay profits, penalties and interest connected to their promotions.

Likewise, the SEC reached a settlement with TV star and businesswoman Kim Kardashian this year over her promotion of the crypto token EthereumMax (EMAX) without disclosing the payment she had received. She paid $1.26 million without admitting any fault.

For Kardashian, the key difference is tripping the wire of a securities product as opposed to a simple product. Most products fall under the U.S. Federal Trade Commission's (FTC) Endorsement Guidelines. That only requires "simple and clear language" showing that a commercial pitch is part of an "ad" or "sponsored" feature.

Notably, Kardashian labeled her EthereumMax post as an "ad," but the SEC views a crypto asset as a security, not just another product. Under SEC rules, a celebrity promoting a crypto-asset security must disclose the nature, source and amount of compensation received in exchange for the promotion.

Kardashian captures the lunacy of celebrity endorsements. The Kardashians are the celebrity Slurpees of popular culture, the zero-nutritional-value entertainment option. They are a family that became famous by claiming to be famous without any appreciable skill or value other than being celebrities.

For someone to take investment advice from Kim Kardashian is the ultimate example of a fool and his money being soon parted. However, whose fault is it when you make Kardashian or Brady your financial adviser on the basis for a 30-second commercial?

We live in a celebrity-dominated culture. Despite all of our progress as a species, more people are likely to know and follow the advice of Kim Kardashian than the Dalai Lama. Indeed, few of us want to imagine the Dalai Lama in Lululemon yoga pants, and I doubt it would lead to a buying frenzy.

Ultimately, however, celebrities sell themselves — and the rule for consumers remains “caveat emptor,” or "buyer beware."

Jonathan Turley is the Shapiro Professor of Public Interest Law at George Washington University. Follow him on Twitter @JonathanTurley.