A celebrity-endorsed cryptocurrency is almost five times as likely to be a scam

By Brett Arends

The 'attention economy' is really the sucker economy

About 10% of all crypto coins launched turned out to be outright scams, but for those endorsed by so-called celebrities, that figure was 45% to 48%.

New cryptocurrencies publicly endorsed by celebrities - often on social-media platforms such as Twitter - were almost five times as likely as those that weren't endorsed to turn out to be scams and to see their value collapse to zero.

Yet those cryptocurrencies also raised about five times as much money, on average, as the ones without a celebrity endorsement, meaning that the famous face was worth an extra $80 million or more to the promoters.

These two shocking facts have been revealed by the diligent digging of finance professors Joshua White of Vanderbilt University and Sean Wilkoff of the University of Nevada, Reno. They published their findings in the peer-reviewed Journal of Banking and Finance, offering an important look behind the scenes at our modern so-called attention economy, which could better be described as the "sucker economy."

White and Wilkoff trawled through about 1,500 new cryptocurrencies launched during the mania of 2017-18. They identified the ones that had been "endorsed" during the initial coin offering - the fundraising, or launch - by a famous person, typically a cultural celebrity. Then they tracked what happened next.

'Celebrity endorsements sell investments for the same reason they sell shoes: People confuse familiarity with trust.'Financial planner Aaron Gaines

Even to a cynic like me, the results were worse than expected.

While about 10% of all the coins launched turned out to be outright scams, the figure for those endorsed by so-called celebrities was a staggering 45% to 48%.

"Celebrity-endorsed [initial coin offerings] are 35 to 38 percentage points more likely to be classified as scams," Wilkoff confirmed to me by email. "The sample average for scams is [around] 10%." That, he noted, means the estimated rate for endorsed initial coin offerings is 45% to 48%, or roughly 4.5 to 5 times more likely to be a scam. "This is an increase of about 350% to 380%," he added.

But for all that, the celebrity endorsements worked ... at least for the currency promoters, and in many cases for the celebrities.

"Celebrity endorsements are associated with raising about five times as much capital as non-endorsed offerings," White and Wilkoff report in their paper. "Relative to the sample mean of $17.5 million, this corresponds to an incremental increase of approximately $83 million to $104 million in funds raised."

A few years ago the Securities and Exchange Commission charged a number of celebrities (see here and here and here) with offenses related to crypto offerings. But the charges were often based on technicalities, such as failing to publicly disclose how much they were paid to endorse the new coins. Some other celebrities were sued for promoting Sam Bankman-Fried's FTX crypto platform before it collapsed, but a judge dismissed most of those claims.

The new research is a timely reminder about the "attention economy" -the term marketing professionals use for the modern world of social media and a gazillion TV channels, where the public is so overwhelmed with choices that just attracting their attention is incredibly valuable.

Famous faces - from musicians to Instagram influencers - can capture attention, and they sell this power to the highest bidder. Fans are lambs to be slaughtered. We as human beings identify with celebrities who have nothing to do with us, but these parasocial relationships can be very bad for our wealth.

"Celebrity endorsements sell investments for the same reason they sell shoes: People confuse familiarity with trust," says financial planner Aaron Gaines of Gaines Capital Management in Smyrna, Ga. "When investors see someone they recognize promoting an opportunity, their guard can come down. Then you add FOMO - the fear that everyone else is getting rich - and people can start asking, 'How much can I make?' before asking, 'How much can I lose?'"

White and Wilkoff say they can only prove a connection between celebrity endorsements and scams, not the cause. "We cannot claim that celebrity endorsements cause fraud," Wilkoff says. "It may be that fraudulent issuers are more likely to recruit celebrities."

Financial planner Matthew Chancey, founder of Tax Alpha Companies in Tampa, Fla., says the connection is no accident. "The deals that need a famous face most are the ones that can't survive questions, and the celebrity gets paid when the money comes in, not when investors get paid back," he says, adding that for him, a celebrity endorsement is the biggest red flag in any private deal.

Donald LaGrange, a financial planner with Murphy & Sylvest Wealth Management in Dallas, says people should ask some simple questions before investing in anything recommended by a famous face. Among them: What good or service am I actually investing in, and where does the money come from to pay the celebrity promoting it? He recommends that people learn about the psychological tools of manipulation behind the attention economy and influencers.

In a perfect world, we could focus our ire on the cynical, greedy and ruthless celebrities who treat their fans as saps. In many cases they deserve contempt, not celebration.

"Celebrities don't get a free ride here," says Mark Stancato, a financial planner with VIP Wealth Advisors in Decatur, Ga. " If you're willing to monetize your credibility, you should be willing to do the homework. Your reputation should not be rented out to the highest bidder."

The cynic in me says this ship appears to have sailed. The sucker economy is out of control. The lambs actually line up for the knife. Witness the celebrity cryptocurrencies $TRUMP and $MELANIA, which are down 95% and 99%, respectively, from their peaks. (On the plus side, it has never been this cheap to own either one.)

With all financial products, much as with anything else, financial planners recommend a simple test: Would you buy this product if the celebrity had nothing to do with it?

-Brett Arends

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09-23-26 1123ET