Shaq’s settlement for FTX fraud could impact athlete deals

Last week, in a court filing shedding light on the proposed settlement between Shaquille O’Neal and investors of the failed cryptocurrency exchange FTX, it was revealed that O’Neal had agreed to pay $1.8 million to resolve legal claims against him regarding his FTX endorsement. This settlement, which is pending approval from U.S. District Judge K. Michael Moore, marks a significant development in a legal realm that typically favors endorsers.

O’Neal is among several prominent figures who faced lawsuits from FTX investors, accusing them of encouraging investments in the collapsed cryptocurrency platform. Alongside the likes of Tom Brady, Shohei Ohtani, Steph Curry, Gisele Bündchen, Naomi Osaka, and David Ortiz, O’Neal had endorsed FTX, which experienced a downfall in 2022. The founder of FTX, Sam Bankman-Fried, was convicted of fraud, money laundering, and conspiracy charges and received a 25-year prison sentence. Allegations of unfair and deceptive practices, conspiracy to solicit payments in a dubious enterprise, and aiding and abetting were brought against these celebrities.

In the midst of the legal battle, O’Neal’s evasion tactics made headlines as process servers struggled to locate the towering former NBA star. Eventually, the 53-year-old O’Neal was served the legal papers while he was working as a TNT broadcaster during a playoff game featuring two of his former teams, the Boston Celtics and Miami Heat.

Historically, endorsers have not been commonly held accountable for the misdeeds of the brands they endorse. Typically, endorsers are compensated to lend their name, image, or likeness to a brand, with limited insight into the company’s operations and leadership. They are not involved in managerial or strategic decision-making, thereby minimizing their exposure to any wrongdoing related to financial activities and accounting. However, endorsers who take on equity stakes or leadership roles within a company may face legal repercussions if the company is embroiled in misconduct. On the other hand, paid spokespersons are less likely to face such legal challenges.

This legal precedent was evident in a previous case involving former MLB All-Star Steve Garvey. Garvey faced litigation for endorsing Enforma, a weight-loss system that made false claims about effortless weight loss. The Federal Trade Commission accused Garvey of misleading consumers, but the U.S. Court of Appeals for the Ninth Circuit ruled in Garvey’s favor. Despite potential negligence on Garvey’s part for not investigating Enforma more thoroughly before endorsing it, the court determined that Garvey did not have actual knowledge of any deceptive practices, thus absolving him of any legal liability.