MLB's Sponsorship Deal Signaled FTX 'Was Safe for All Investors': Class Action

Fifteen cryptocurrency users are suing MLB, its players and related entities for their sponsorship relationship with FTX Trading, the cryptocurrency exchange that collapsed in November 2022 in what SEC Chair Gary Gensler called a “house of cards” built on a “foundation of deception.” FTX "stole more than $8 billion" in class member funds, "the bulk of which has now vanished," said the class action (docket 1:23-cv-24479), filed Monday in U.S. District Court for Southern Florida in Miami.

Many class members "came of working age in the recession and, later, the COVID-19 pandemic, and as a result have spent their lives working long hours for low wages, often across multiple jobs or in the gig economy," the complaint said. FTX, launched in 2019, "became one of the most utilized avenues for nascent investors to purchase cryptocurrency," it said. By the time it filed for bankruptcy protection, customers had entrusted "billions of dollars" to FTX, with estimates ranging from $10 billion-$50 billion, it said.

The partnership between the MLB and FTX was seen as “one of the crypto exchange’s most publicly visible sponsorships,” with the purpose of “signaling to the world that FTX was safe for all investors,” the complaint said. “It is indisputable that through this partnership, the MLB endorsed and encouraged investors throughout the country and world to use the deceptive platform,” it said.

MLB and FTX announced a five-year partnership in June 2021, calling it “the first-ever partnership between a professional sports league and a cryptocurrency exchange,” the complaint said. The partnership was for “'worldwide marketing rights associated with MLB marks, logos and special events,’ allowing the deceptive platform to be ‘promoted during nationally televised games, as well as on MLB.com, MLB Network, MLB.TV and the league’s social media platforms,’” it said.

The first collaboration out of the partnership was the “the ‘MLB Moon Blasts Pick ‘Em’ contest, which ‘offered $50,000 worth of Bitcoin to be deposited into the winner’s FTX account,’” the complaint said. A subsequent contest doubled the grand prize to $100,000 in crypto, it said. MLB “zealously promoted FTX across the United States, including Florida,” it said.

In 2019, FTX began offering yield-bearing accounts (YBAs) to public investors through the Earn program, and plaintiffs and other individuals invested in them with the understanding they could earn up to an 8% annual percentage yield (APY) on the first $10,000 invested, the complaint said. Amounts of $10,000-$100,000 earned 4% APY, said the company’s website. MLB and FTX launched a partnership designed to bring cryptocurrency and investing in the “Deceptive FTX Platform, including YBAs and/or FTT," FTX’s native cryptocurrency token, "to the masses of MLB fans across the country and world," it said.

The complaint cited an October 2022 declaration from Joseph Rotunda, Texas State Securities Board enforcement director, saying YBAs are “an offering of unregistered securities in the form of yield-bearing accounts to the residents of the United States.” Rotunda’s declaration, part of Chapter 11 bankruptcy proceedings in connection with the collapse of the Voyager Digital cryptocurrency exchange, said FTX appeared to be “restricting operations” in the U.S. and FTX US was not registered as “a money transmitter or in any other capacity with the Texas Department of Banking," nor was it registered as a securities dealer with the Texas State Securities Board. MLB defendants didn’t disclose FTX was compensating them “for promoting the sale of unregistered FTX securities,” it said.

The “centerpiece” of the partnership was the inclusion of FTX.US patches on all MLB umpires’ uniforms, marking “the first time in the history of MLB, which dates back to the 1800s, that a sponsor brand has had its logo appear on umpire uniforms,” the complaint said. The patches were visible to fans attending games and “globally by viewers of the game broadcasts,” it said.

MLB knew, when entering the partnership, that teams’ promotions would be “widely viewed nationwide,” including in Florida, where FTX had its domestic home office, the complaint said. MLB knew promotions would be “disseminated to consumers in Florida and elsewhere” and be “linked, published, or reposted across innumerable media outlets on the internet and elsewhere,” it said.

MLB entered into “questionable deals in the past, tending to ‘mak[e] deals now and ask [] questions later,’” the complaint said, citing a November 2022 blog post referencing a partnership with Distill Brands International for the “official vodka of the MLB.”

Plaintiffs are Brandon Orr, an Arizona resident; Leandro Cabo and Ryan Henderson of California; Michael Livieratos of Connecticut; Alexander Chernyavsky, Gregg Podalsky and Vijeth Shetty of Florida; Chukwudozie Ezeokol of Illinois; Michael Norris of New Jersey; Edwin Garrison of Oklahoma; Shengyun Huang of Virginia; Vitor Vozza of Brazil; Kyle Rupprecht of Canada; Warren Winter of Germany; and Sunil Kavuri of the U.K. All the plaintiffs “purchased or held legal title to and/or beneficial interest in any fiat or cryptocurrency deposited or invested through an FTX Platform,” it said.

Plaintiffs and class members purchased YBAs, “based in part on justifiable reliance on the Defendant’s misrepresentations and omissions” regarding the FTX platform, said the complaint. If the facts had been known, “including but not limited to that the YBAs are unregistered securities, the FTX Platform does not work as represented, and the Defendants were paid exorbitant sums of money to peddle FTX to the nation,” plaintiffs and class members “would not have purchased YBAs in the first place,” it said.

Plaintiffs assert violations of Florida’s Securities and Investor Protection and Deceptive and Unfair Trade Practices acts; California’s Unfair Competition Law Business & Professions Code and its Securities Law; Oklahoma’s Consumer Protection and Uniform Securities acts; civil conspiracy; aiding and abetting fraud; and aiding and abetting conversion. They seek awards of actual, direct, compensatory, statutory, punitive and multiple damages; injunctive relief enjoining the defendants from continuing unlawful practices described; and attorneys’ fees and costs. MLB didn't comment Tuesday.