Emojis and Securities law: How a simple emoji triggered a legal battle


Emojis, while being a widespread form of modern expression, can potentially cause legal problems for firms.

Theta Lake‘s Susannah Hammond recently provided insight into a recent legal case involving the use of emojis related to NFTs and what this means for companies across various industries.

A rocket ship emoji is not always a symbol of futuristic adventure; it can be a significant legal matter. Recently, a U.S. court ruling stated that a firm and its control person had violated securities laws by offering NFTs for sale to the public without filing the necessary registration statement with the SEC.

In an unexpected twist, a judge ruled that a tweet from NBA Top Shot promoting an NFT using emojis constituted an investment contract under the Howey Test, despite the tweet never using the word “profit”. Emojis symbolising a rocket ship, stock chart, and money bags were interpreted as an expectation of a financial return on investment.

The Howey Test, essential for determining whether a transaction qualifies as an investment contract, includes investment contracts in the U.S. Securities Act’s broad definition of a security. It involves four criteria for recognising an investment contract, and its application to cryptocurrencies and initial coin offerings (ICOs) is of special importance in the FinTech sector.

In the case in question, the court’s conclusion was narrow, indicating that not all NFTs will necessarily be considered securities. Instead, each case must be analysed individually.

The importance of emojis as a form of communication cannot be overstated, and in a business context, they must be handled with the same care as other communication types. Firms must be aware of the risks associated with emojis and the potential legal implications. This includes possible issues with collusion, misconduct, and other socially unacceptable behaviours within an organisation.

Preventive measures, such as robust governance frameworks and employee guidance, are essential for firms to manage the use of emojis in communications. Regular training on regulatory and compliance expectations, coupled with comprehensive capture, preservation, and retrieval systems for communications, is vital for a modern risk-aware approach.

While the use of emojis in this particular legal case triggered the Howey Test, emojis are simply another form of communication. Companies must ensure that they are included within their strategic approach to data management, acknowledging that they are neither inherently good nor bad.

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