- A federal judge has dismissed several state law claims against celebrities and YouTubers who promoted FTX, criticising the lawsuits as overbroad and poorly pled
- The court found the Florida and Oklahoma securities claims may proceed but rejected the California claim for lacking intent to defraud
- Plaintiffs have been granted leave to amend certain claims, including under consumer protection laws, which the judge said were “not pled with the required specificity”
A federal judge overseeing the FTX multidistrict litigation has ruled that most of the claims brought against a slate of celebrities and influencers were insufficiently pled, allowing only a few state securities law claims to proceed. The court found that the plaintiffs failed to provide enough specific detail or demonstrate fraudulent intent in many of their allegations. However, claims under Florida and Oklahoma securities laws survived, as did the opportunity to amend certain consumer protection counts.
FTX Collapse and the Celebrity Angle
The lawsuits stem from the dramatic collapse of crypto exchange FTX in November 2022, when users pulled $5 billion in a panic that led to the firm’s bankruptcy. Its founder, Sam Bankman-Fried, has since been convicted of fraud. Plaintiffs allege they were lured into using FTX by the endorsements of high-profile figures including Tom Brady, Gisele Bündchen, Larry David, Kevin O’Leary, and the Golden State Warriors.
In his order, Judge K. Michael Moore noted the case touches “one of the largest instances of financial fraud in U.S. history,” but said the plaintiffs’ sprawling, 200-page complaint failed in several respects to tie specific promotional conduct to legal wrongdoing.
“Shotgun” Pleading and State Law Conflicts
Judge Moore rejected the argument that the complaint was a “shotgun pleading” but said that many of the claims still lacked clarity. He found that the complaint was “pleaded on a person-by-person basis” but criticised its vagueness and failure to properly distinguish roles between defendants. “Although there are issues related to the specificity of certain claims,” he wrote, “the CAC is not a shotgun pleading.”
Still, claims under California’s securities law were dismissed because plaintiffs failed to show the defendants “intended to induce reliance on a knowing misrepresentation.” Similarly, claims under consumer protection laws were tossed for being too vague and speculative.
Plaintiffs Given a Path to Amend
Despite the dismissals, the court allowed the plaintiffs to amend several claims, including under Florida’s Deceptive and Unfair Trade Practices Act. As the judge put it, “Plaintiffs have failed to meet the heightened pleading requirements of Rule 9(b),” which requires fraud-based claims to be pled with particularity.
In allowing the lawsuits to proceed in limited scope, the court accepted that the FTX yield-bearing accounts and native token, FTT, may plausibly be considered unregistered securities under Florida and Oklahoma law—opening a narrow path forward in what had been a broad legal offensive.
