The NBA and Crypto Fraud: Should the League Be Held Responsible?

The NBA and Crypto Fraud: Should the League Be Held Responsible?

In a recent turn of events, a former SEC official has pointed fingers at the NBA regarding its decision to approve a partnership between cryptocurrency exchange Voyager Digital and the Dallas Mavericks. The former internet enforcement chief for the Securities and Exchange Commission (SEC), John Reed Stark, argues that the NBA should bear some responsibility for any fraudulent activities related to cryptocurrency engagements by its teams. This is a subject of great debate and raises the question of whether professional sports organizations should be accountable for the actions of their partners.

Stark draws attention to the NBA’s swift intervention in cases where teams partner with organizations involved in illegal or unethical activities. He suggests that the same standards should apply to cryptocurrency partnerships. According to Stark, if a team were to align itself with a heroin manufacturing firm or a blood diamond mining company, the NBA would surely step in and prohibit such an arrangement. He argues that the NBA should take a similar approach when it comes to crypto partnerships, which can result in devastating consequences for investors.

The collaboration between Voyager and the Mavericks has led to a class-action lawsuit initiated by investors. The lawsuit, consisting of a 108-page proposed class action, alleges that Voyager made false claims regarding investor protection during the formation of the partnership in October 2021. Mark Cuban, the owner of the Dallas Mavericks, is anticipated to be deposed in the coming month. The extent of the NBA’s responsibility in relation to the alleged fraud remains uncertain. However, Stark firmly believes that the NBA should be held accountable for any misconduct perpetrated by its teams in the context of cryptocurrency.

Voyager, once a prominent player in the crypto market, submitted a Chapter 11 bankruptcy filing in July 2022 amidst a decline in the market. This came approximately eight months after announcing the partnership with the Mavericks. The United States Commodity Futures Trading Commission and the Federal Trade Commission (FTC) subsequently filed lawsuits against former Voyager CEO Stephen Ehrlich, accusing him of making fraudulent statements. While Voyager reached a settlement with the FTC, agreeing to provide $1.65 billion in monetary relief, Ehrlich did not agree to a settlement, and the FTC’s case against him will proceed in federal court.

The NBA is also currently facing a proposed class-action lawsuit related to its marketing partnerships with Voyager. The case is ongoing in the U.S. Bankruptcy Court for the Southern District of New York. A restructuring plan proposed in May 2023 aims to allow Voyager customers to initially recover 35.7% of their claims in either cryptocurrency or cash. However, the determination of the NBA’s liability in this complex situation remains uncertain.

The involvement of professional sports organizations in cryptocurrency partnerships raises important questions about accountability and responsibility. Should the NBA be held responsible for fraudulent activities related to crypto engagements by its teams? While the former SEC official, John Reed Stark, argues in favor of NBA liability, the outcome of ongoing legal proceedings will ultimately determine the extent of the league’s responsibility. As the case unfolds, it prompts a broader discussion about the role and accountability of sports organizations in the world of cryptocurrency.

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