The Securities and Exchange Commission’s celebrity crypto touting campaign reached the A-list on Monday (Oct. 3), as Kim Kardashian agreed to a $1.26 million fine. She also “disgorged” $260,000, including her $250,000 fee, plus interest.
The case revolved around an all-caps Instagram post the influencer and entrepreneur, who has a net worth of $1.8 billion according to Forbes, made “touting” the EthereumMax cryptocurrency — which the SEC says is a security under its jurisdiction — without properly disclosing that she was paid to do so.
In a statement Monday, SEC Chairman Gary Gensler called the case “a reminder that, when celebrities or influencers endorse investment opportunities, including crypto asset securities, it doesn’t mean that those investment products are right for all investors.”
Kardashian and boxer Floyd Mayweather Jr., along with baseball player Paul Pierce and other EthereumMax promoters, were sued in January in a class-action lawsuit that alleged EthereumMax was a “pump and dump” scheme.
The SEC has filed several similar cases over other cryptocurrency offerings dating back to 2018, including a case against Mayweather and DJ Khaled and one against actor Steven Seagal — all of whom settled, albeit for substantially smaller sums. And they’re hardly the only celebrities using their name and fame to promote cryptocurrencies.
Influencer Logan Paul was heavily criticized for a June 28, 2021, tweet pitching for a cryptocurrency called Dink Doink that eventually crashed and burned. The New York Times reported that Paul didn’t disclose that Dink Doink was launched by a friend who gave him a large allocation of the tokens.
On the other hand, that tweet called it the “dumbest, most ridiculous” token — using a somewhat obscene name for worthless cryptocurrencies — before adding “that’s why I’m all in.”
This kind of action isn’t exclusive to the SEC or cryptocurrencies. The Federal Trade Commission (FTC) has alleged celebrities have used their names to promote schemes that turned out to be, it alleged, scams — for example, a number of real estate reality television show hosts were the subject of complaints two years ago over promoting what it said were training seminars, despite numerous complaints about their quality.
And when Gensler was interviewed on CNBC Monday morning, he refused to say how what Kardashian did was different than Matt Damon’s heavily-criticized Super Bowl ad for the FTX exchange. (One obvious answer: The commercial was for an exchange, not a security.)
See also: Crypto’s Celebrity Endorsements Attract Customers, Repel Critics
What’s a Security?
A fair part of Kardashian’s case revolves around the SEC’s claim that virtually all cryptocurrencies are securities — something that has been widely disputed within the industry and is the core of a lawsuit the agency is fighting with cross-border payments firm Ripple, the only company to refuse to settle.
However, Kardashian’s case is different in one regard: She did, in fact, disclose that she was being paid.
The Instagram post — an all-capped post starting “ARE YOU INTO CRYPTO??? THIS IS NOT FINANCIAL ADVICE BUT SHARING WHAT MY FRIENDS JUST TOLD ME ABOUT THE ETHEREUM MAX TOKEN” — ended with seven hashtags. Six were about the EthereumMax (or EMAX) token, and the seventh was “#AD,” a typical way for influencers to disclose to followers that they’re being paid.
EthereumMax — no relation to Ethereum, to the No. 2 crypto blockchain by market cap — also crashed and burned shortly after launch.
But that was not enough in this case, Gensler said on CNBC, noting that the Securities Act requires disclosing not only that the touter was paid, but the amount and nature of the payment. In Seagal’s 2020 settlement, it was disclosed that his payment was $250,000 cash and $750,000 in Bitcoiin2Gen tokens.
Like virtually all settlements, Kardashian did not admit or deny the agency’s findings, telling CNBC through her lawyer that she “wanted to get this matter behind her to avoid a protracted dispute … so that she can move forward with her many different business pursuits.”
As for the whys, Gensler reiterated that cryptocurrencies are very volatile, adding: “We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals.”
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