In a world where influencers wield the power to sway opinions, a tempest brews in the realm of crypto. Edwin Garrison leads a class-action charge, seeking $1 billion from an ensemble of influencers, including YouTube personalities, for promoting FTX crypto allegedly without revealing their backstage rewards. This legal saga unfolds in the Southern District of Florida, Miami Division.

    Among the defendants stand Kevin Paffrath, Graham Stephan, Andrei Jikh, Jaspreet Singh, Brian Jung, Jeremy Lefebvre, Tom Nash, Ben Armstrong, Erika Kullberg, and Creators Agency LLC. A crew of eight YouTubers, a talent management company, and an agency founder caught in the storm.

    The suit alleges that FTX lined the defendants’ pockets, urging them to promote the brand while leaving their followers in the dark about the compensation they received. Furthermore, it questions their due diligence — or lack thereof — in scrutinizing the brand they endorsed. These influencers, heralded by their communities as authentic and valuable sources of information, now face a billion-dollar question: Did they let the allure of wealth cloud their judgment, and betray their followers’ trust?

    Under the Federal Trade Commission (FTC) guidelines, influencers are obligated to clearly and conspicuously disclose their relationships with brands when promoting products or services. The aim is to maintain transparency and protect consumers from deceptive advertising practices. Key aspects of these disclosure obligations may include:

    Clear and conspicuous disclosure: Influencers must ensure their disclosures are easy to notice and understand. They should be placed in a prominent location, using clear language, and not buried in a long list of hashtags or links.

    Platform compliance: Influencers must adhere to the disclosure guidelines specific to each platform they use. For instance, Instagram requires users to tag a post as a “Paid partnership,” while YouTube offers a “Contains paid promotion” option.

    Disclosure timing: Influencers must disclose their relationship with the brand in every sponsored post or piece of content. One-time disclosure or mentioning the relationship in a separate post is not sufficient.

    Nature of the relationship: Influencers should be transparent about the nature of their relationship with the brand, whether it’s a sponsorship, free product, or any other form of compensation.

    Honest opinions: Influencers are expected to share their genuine views about the products they endorse. They should not make false or misleading claims about the product’s features, effectiveness, or benefits.

    Failure to adhere to these FTC guidelines can lead to legal consequences, fines, and damage to both the influencer’s and the brand’s reputation.

    In third-party lawsuits like this one, the plaintiffs can use FTC violations as evidence to help establish liability, fault and damages.

    A possible proximate cause between an influencer failing to follow one or more of the the above FTC rules and regulations and harm and damages caused to a consumer who reasonably relied upon the influencer’s recommendations can be established if there is a direct and foreseeable link between the influencer’s. non-disclosure or misleading information and the consumer’s decision-making process, leading to harm.

    For example, if an influencer does not disclose their relationship with a brand or misrepresents the product’s features or benefits, consumers might be led to believe that the endorsement is unbiased and based solely on the influencer’s positive experience with the product. As a result, consumers may make purchasing decisions based on this seemingly objective information, which could lead to financial loss, disappointment, or harm if the product does not live up to their expectations.

    In such cases, the influencer’s failure to adhere to the FTC guidelines could be considered the proximate cause of the consumer’s harm and damages, as their decision was influenced by the lack of transparency and potential misinformation provided by the influencer. This could lead to legal consequences for the influencer and the brand, including potential liability for damages suffered by the consumer.

    Pursuing a claim against an influencer or group of influencers for failing to follow FTC guidelines and related causes of action for harm and damages presents several factual and legal challenges for a plaintiff:

    Proving causation: The plaintiff must establish a causal link between the influencer’s non-compliance with FTC guidelines, or other non-disclosures and misrepresentations, and the harm or damages they suffered. This involves demonstrating that they relied on the influencer’s recommendation and would not have made the same decision if the influencer had properly disclosed their relationship with the brand or provided accurate information.

    Quantifying damages: Determining the amount of damages suffered by the plaintiff can be challenging, as it may involve subjective factors like the perceived value of the product or the extent of the consumer’s disappointment. Accurately calculating financial losses and other damages can be difficult, especially if the claim involves a large group of plaintiffs or multiple influencers.

    Identifying responsible parties: In cases involving multiple influencers or a complex web of brand relationships, it can be challenging to pinpoint the specific individuals or entities responsible for the plaintiff’s harm. This may require extensive investigation and evidence collection.

    Gathering evidence: Collecting concrete evidence of the influencer’s non-disclosure or misrepresentation can be difficult, as digital content may be transient or easily manipulated. The plaintiff may need to rely on screenshots, archived web pages, or witness testimony to build their case.

    Establishing jurisdiction: Influencers and their audiences can be scattered across multiple states or countries, making it challenging to determine the appropriate jurisdiction for filing the lawsuit. This may involve complex legal analysis and potential conflicts of law.

    First Amendment considerations: Influencers may argue that their content is protected by the First Amendment, which guarantees freedom of speech. The plaintiff must demonstrate that the influencer’s actions crossed the line from protected speech to deceptive advertising, which can be a nuanced and challenging argument to make.

    These challenges, among others, make pursuing a claim against influencers for failing to comply with FTC guidelines a complex and potentially time-consuming process.

    Influencer defenders in such cases face several challenges while defending themselves against the allegations. This often includes:

    Legal costs: Lawsuits can be financially draining, and influencers may have to bear considerable legal fees while engaging counsel and navigating the litigation process.

    Proving compliance: Defendants must gather evidence to demonstrate that they adhered to FTC guidelines and provided adequate disclosures. This might include presenting documentation, archived content, or communication records to support their claims.

    Reputational damage: Even if the defendants successfully defend themselves, the mere association with a high-profile lawsuit can tarnish their reputation, potentially leading to a loss of followers, brand partnerships, and income.

    Demonstrating due diligence: Influencers must show that they conducted appropriate research and assessments before endorsing the product or service in question. This involves proving that they acted responsibly and in good faith, rather than negligently or with the intent to deceive.

    Establishing the truthfulness of claims: Defendants must demonstrate that their statements and endorsements about the product or service were accurate and not misleading, which may require them to provide evidence of their genuine experiences and opinions.

    Counteracting emotional and psychological stress: Lawsuits can be emotionally draining and time-consuming, which may impact the defendants’ personal lives, mental health, and professional productivity.

    These challenges, among others, make defending against such lawsuits a complex and potentially arduous journey for influencer defendants.

    In conclusion, as the digital landscape continues to evolve and the power of influencers grows, the need for transparency and adherence to FTC guidelines becomes increasingly critical. Add AI generative content into the picture and things really get interesting–and complicated. Cases like this one involving FTX and the influencers may set important precedents and lead to greater scrutiny of influencer marketing practices.

    We can expect regulatory bodies like the FTC to intensify their efforts to enforce existing rules and potentially update or introduce new regulations to address emerging challenges in the influencer marketing space. Because of the potential financial exposure influencers, brands, and talent management companies are exposed to by these class action cases, they too must be more cautious and diligent in their promotion and advertising practices to avoid legal repercussions and reputational damage.

    Consumers, on the other hand, may become more vigilant and discerning in evaluating endorsements and recommendations from influencers. This heightened awareness may lead to an increased demand for genuine, transparent, and reliable information.

    Ultimately, the outcomes of these types of cases will shape the future of influencer marketing, reinforcing the importance of ethical advertising practices and fostering a more responsible and accountable digital environment for both creators and consumers.

    What’s your take on the unfolding drama? Is this case a legitimate pursuit of justice, or merely an opportunistic grab for cash?

    Mitch Jackson, Esq.

    2013 California Litigation Lawyer of the Year

    2009 Orange County Trial Lawyer of the Year


    PS- Safeguarding personal assets is crucial for influencers navigating the treacherous waters of digital and traditional business liabilities. Operating as a legally recognized entity, like a corporation or limited liability company, can offer that much-needed protection. Stay tuned for my post next week that delves into the inner workings of these legal structures and unveils 100 compelling reasons why every influencer should embrace them for a secure and prosperous business journey.


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