Government Warns Not to Trust DJ Khaled's Shady Online Currency-Investing Advice

They don't want you to invest in Bitcoin-style cryptocurrencies.

Seriously: The Securities and Exchange Commission this past Wednesday warned people to be wary about investing in the extremely sketchy, online-only currencies advertised lately by celebrities — including Floyd Mayweather, Paris Hilton, Jamie Foxx, rapper the Game, and none other than Miami's own DJ Khaled.

After Bitcoin became the world's first mainstream, online-only form of real money (one Bitcoin is currently valued at more than $7,000), tech investors have since created a slew of new so-called cryptocurrencies, including real ones such as Ethereum or Dogecoin, and some the SEC warns might be not-so-legit. In 2017 alone, there have reportedly been more than 270 "initial coin offerings," which have raised more than $3.2 billion in startup funding.

The problem, the feds say, is celebs such as Khaled have been taking payouts to promote some of the shadier currencies. Celebs "who endorse an investment often do not have sufficient expertise to ensure that the investment is appropriate and in compliance with federal securities laws," the SEC wrote Wednesday.

The commission later warned that buyers "relying on a particular endorsement or recommendation [should] learn more regarding the relationship between the promoter and the company and consider whether the recommendation is truly independent or a paid promotion."

Though the SEC didn't mention any celebs by name, the statement almost certainly refers in part to Khaled because it comes mere days after the New York Times published a huge investigation into a possibly fraudulent cryptocurrency-accessing debit card called Centra, which was founded by a trio of tech bros from Miami.

The three paid Khaled, among other big names, to stump for them. On September 27, Khaled posted an Instagram image of himself holding up a tiny gray Centra-branded debit card, which the company claimed customers could use to spend crypto-cash anywhere Visa cards were accepted. (More about that in a second.) Centra told the Times it got in touch with Khaled and boxer Mayweather through social contacts in Miami.

"I just received my titanium Centra debit card," Khaled wrote online while holding a bottle of Diddy's apple-flavored Cîroc vodka in his other hand. He sat under a portrait of painter Jean-Michel Basquiat. "The Centra Card & Centra Wallet app is the ultimate winner in Cryptocurrency debit cards powered by CTR tokens! Use your bitcoins, ethereum, and more cryptocurrencies in real time across the globe. This is a Game changer here. Get your CTR tokens now! #CryptoBilli #Bitcoin #Ethereum #Digitalcurrency."

But there were two problems here: One, Khaled didn't mention he was getting paid by the currency's Miami-based operators to stump for them. That's a potential violation of securities law.

(A spokesperson for Khaled didn't immediately respond to an email from New Times sent yesterday evening.)
And two, it turns out Centra was possibly built atop a mountain of fraud. According to the Times piece, Centra was created by two 26-year-old Miamians, Sam Sharma and Raymond Trepani, whose previous work experience came at Miami Exotics, a luxury-car-rental business. The company then added a marketing officer, Robert Farkas, and an older CEO, Michael Edwards.

But the Times reported that cracks began to show pretty quickly. A computer programmer noted that Edwards appeared to be made-up, and accused the trio of using a stock photo to pretend he existed. The Centra team threatened to sue the programmer but later removed every reference to Edwards online and deleted a few other employee profiles that outside observers had questioned.

Sharma himself also has a long history of lawsuits and has been accused multiple times of stiffing business partners or trying to fraudulently sell cars he didn't own. He has also reportedly been evicted twice.

Sharma and Trepani are also both currently charged with perjury in Manhattan for allegedly lying on the stand about drunk-driving a white Maserati in 2016.

Perhaps most important, the card's central claim fell through: Centra hadn't even applied, let alone been approved, to operate on the Visa network. After the Times began asking questions, Centra pulled mentions of Visa from its site and instead said it would operate on the MasterCard network instead because that system doesn't require approval. A MasterCard spokesperson immediately contradicted them.

For now, the Times notes the Centra team has raised $30 million and still plans to move forward with the product. But the SEC says it wants people to be aware that celebrities such as Khaled are not experts when it comes to investing in digital currency or investing in general.

"Any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion," the SEC writes. "A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws. Persons making these endorsements may also be liable for potential violations of the anti-fraud provisions of the federal securities laws, for participating in an unregistered offer and sale of securities, and for acting as unregistered brokers."

It appears Khaled might have finally broken his own golden rule: He has, it seems, played himself.

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Jerry Iannelli is a former staff writer for Miami New Times from 2015 to March 2020. He graduated with honors from Temple University. He then earned a master's degree in journalism from Columbia University.