Friend.tech will likely draw the SEC’s attention, legal experts say

Friend.tech, a decentralized social media platform on which users can buy and sell “shares” of personal accounts on X, formerly Twitter, experienced a surge in interest over the weekend.

The platform raked in more than $1 million in fees over a 24-hour period — and attorneys focused on crypto believe it’s safe to say the US Securities and Exchange Commission is watching.

Friend.tech transactions come with two 5% fees. One goes to Friend.tech’s treasury and one goes to the account holder for whom the shares are being traded. Users can also, in theory, turn a profit by investing in accounts whose share value increases.

The model appears similar to the stock market, securities experts say. Just as public company shareholders can receive dividends, influencers can opt to share fees with buyers — a perk many are already offering to boost trading volume and share prices.

Shareholders are granted permission to privately message accounts in which they have a stake. This gives the app a potential utility that could come in handy if securities regulators take interest, according to Mark Hiraide, a partner at Mitchell Silberberg & Knupp.

But, the expectation of profit cannot be ignored, Hiraide told Blockworks.

“Clearly there’s some utility there, but the fact that they call these ‘shares’ is an indication that these are not just admission tickets,” Hiraide said. “What they are selling essentially is the prospect of capital appreciation in the shares; as more people join the platform, as more people buy shares to access popular personalities, the value of the shares will increase.”

Whether or not the shares ever trade on a platform separate from Friend.tech will also be something to watch, Hiraide said, as listing on third-party exchanges would make it harder to distinguish the assets from traditional securities.

Users may not be innocent bystanders, either, as Jesse Hynes — attorney and founder of Seedstarter — said in response to whether influencers could be held liable for share price fluctuations.

“Honestly it’s a legitimate possibility,” he wrote on X. “Even though a person who sets up an account is not an ‘issuer’ per se, if this is unregistered security offerings (like I suspect) people who willingly signed up to allow others to purchase shares may get caught up.”

The application does not currently have a privacy policy. Users are directed to “check out” the policy on the platform’s website, but are then told that it will be “coming soon.”

At sign-up, users allow Friend.tech to view all posts and accounts that the user can see, including protected accounts. Users also grant permission for Friend.tech to post posts and reposts from the users’ account. At this time, users can disable these permissions after registration.

The apparent popularity of Friend.tech and the attention it has drawn alone could be enough to make the SEC step in, Hiraide said.

“I think the same thing is true with the case against Ripple,” he said. “Even though the SEC knew that Ripple had a lot of resources and was going to be able to lawyer up, there was so much publicity surrounding Ripple that the SEC had no choice but to pursue it.”

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