The Securities and Exchange Commission on Monday announced charges against Kim Kardashian for promoting a crypto asset security on her social media without disclosing the payment she received for the promotion. She agreed to settle the charges, pay $1.26 million in penalties, disgorgement, and interest, and cooperate with the Commission’s ongoing investigation.
The SEC’s order finds that Kardashian failed to disclose that she was paid $250,000 to publish a post on her Instagram account about EMAX tokens, the crypto asset security being offered by EthereumMax. Kardashian’s post contained a link to the EthereumMax website, which provided instructions for potential investors to purchase EMAX tokens. Her Instagram has more than 330 million followers.
Ethereum max has lost 95% of its value since June 2021, when Kim Kardashian promoted it. Writes Business Insider:
In the 16 months since her post, the token’s value has dropped 95.3%. That means that if you invested $100 after Kardashian promoted the token, your investment would be worth about $5 today.
Ethereum max, aka EMAX, has been mired in controversy since launching in May 2021. The token isn’t affiliated with the well-known ethereum cryptocurrency — instead, EMAX is an altcoin that uses ethereum’s blockchain ledger to record sales and transactions.
A class action suit against Kim Kardashian, fellow shills Floyd Mayweather and Paul Pierce, and EthereumMax executives has been filed on behalf of investors who purchased EMAX tokens between May 14 and June 27, 2021. [PDF of suit]
This case arises from a scheme among various individuals in the cryptocurrency sector to misleadingly promote and sell the digital asset associatedwith EthereumMax (the EMAX Tokens) to unsuspecting investors. The Company’s executives, collaborating with several celebrity promotors, (a) made false or misleading statements to investors about EthereumMax through social media advertisements and other promotional activities and (b) disguised their control over EthereumMax and a significant percent of the EMAX Tokens that were available for public trading during the Relevant Period (the “Float”).
In furtherance of this scheme, Defendants touted the prospects of the Company and the ability for investors to make significant returns due to the favorable “tokenomics” of the EMAX Tokens. In truth, Defendants marketed the EMAX Tokens to investors so that they could sell their portion of the Float for a profit.
Defendants’ strategy was a success.
“This case is 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,” said SEC Chair Gary Gensler. “We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals.”
“Ms. Kardashian’s case also 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,” Chair Gensler added.
“The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source, and amount of compensation they received in exchange for the promotion,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Investors are entitled to know whether the publicity of a security is unbiased, and Ms. Kardashian failed to disclose this information.”
The SEC’s order finds that Kardashian violated the anti-touting provision of the federal securities laws. Without admitting or denying the SEC’s findings, Kardashian agreed to pay the aforementioned $1.26 million, including approximately $260,000 in disgorgement, which represents her promotional payment, plus prejudgment interest, and a $1,000,000 penalty. Kardashian also agreed to not promote any crypto asset securities for three years.
Meanwhile, SEC Chair Gary Gensler posted a video on YouTube reminding people not to throw away their life savings on celebrity-endorsed investments.