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Keeping up with Kim Kardashian’s crypto controversy
Regulators have also had to contend with a growing crowd of influencers who could on a whim—or on a dollar—sway their followers’ investment moves.
Kim Kardashian will pay $1.3 million to settle allegations from federal regulators that she touted a cryptocurrency asset on social media without disclosing that she was being compensated for doing so.
The million-dollar fine resolves charges against the reality TV star brought by the Securities and Exchange Commission after June 2021, when Kardashian published a story on Instagram trumpeting a cryptocurrency token called EthereumMax. “Are you guys into crypto??? This is not financial advice but sharing what my friends just told me about the ethereum max token!” she wrote to her 330 million followers, who were then linked to the token’s website and encouraged to “join the E-Max community.” Kardashian had been paid $250,000 by EthereumMax developers for the post.
“Ms. Kardashian’s case serves as a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities,” Gary Gensler, chairman of the SEC, said in a statement. While Kardashian had tacked a chain of hashtags onto her post—including one that read “#ad,” suggesting that the post was a paid promotion—the SEC wrote that she had not done enough to make it clear, failing to disclose the “nature, source, and amount of compensation” she received in exchange.
EthereumMax swelled in value last summer on a wave of celebrity endorsements, before crashing by more than 70% months later when the hype began to chill. The crypto coin has now lost nearly all of its value from its peak last spring. It has no relation to Ethereum, the world’s second-biggest cryptocurrency token.
In January, investors in EthereumMax brought a class action lawsuit against the company behind the token for operating what they claimed was an illegal “pump and dump” scheme, in which developers and other bagholders conspire to “pump” up the value of an asset in order to sell it off at artificially inflated prices (hence, the “dump”). The civil suit also named Kardashian, boxer Floyd Mayweather Jr., and former Boston Celtics player Paul Pierce for allegedly collaborating with developers to “misleadingly promote and sell” the token. By that time, the coin was down 97% from its June 2021 price.
The SEC’s investigation comes amid a tightening crackdown from regulators on digital asset trading, which has seen federal bureaus seek to classify cryptocurrencies and NFTs as securities under their purview. Earlier this summer, prosecutors from the U.S. Department of Justice charged an ex-OpenSea executive with the first-ever case of insider trading in the world of NFTs.
Regulators have also had to contend with a growing crowd of influencers who could on a whim—or on a dollar—sway their followers’ investment moves. Early 2021 saw a surge of superstar athletes, from Patrick Mahomes to Serena Williams, who backed a rush of SPACs, or so-called “blank check” companies that underwrite public listings for buzzy startups, which are, more often than not, unprofitable. So overwhelming was the trend that the SEC issued a public warning against taking celebrity investing advice.
In a tweet this morning, Gensler said investors should not confuse the specific talents or success of some celebrities with the “very different skills needed to offer appropriate investment advice.”
Notably, a settlement allows Kardashian to bypass any mea culpa. In a statement, Kardashian’s lawyer said his client was pleased to put the matter behind her “so that she can move forward with her many different business pursuits.” She has founded eponymous beauty, fragrance, and shapewear brands, and filmed a new season of a Hulu reality series this fall.