It is a decision that will shock the young crypto industry -- and undoubtedly curb the enthusiasm of celebrities who associate their names with projects about which they know little or nothing.
The U.S. Securities and Exchange Commission has just charged Kim Kardashian for promoting on social networks a cryptocurrency that turned out to be a scam.
The SEC charged the influencer with "touting on social media a crypto asset security offered and sold by EthereumMax without disclosing the payment she received for the promotion," according to a press release.
The regulator reproaches Kardashian for not having disclosed that she had been paid to advertise this cryptocurrency.
Kardashian Assessed a $1.26 Million Fine
"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," the federal agency explained.
"Kardashian’s post contained a link to the EthereumMax website, which provided instructions for potential investors to purchase Emax tokens."
The reality-TV star, whose fortune is estimated at $1.8 billion, has agreed to pay $1.26 million in penalties to settle the investigation. She also agreed not to promote any crypto-asset securities for three years.
Kardashian neither admitted to nor denied the regulator’s findings, the SEC said.
"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," SEC Chairman Gary Gensler said in a statement.
"We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals."
He added: "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."
Lawsuit Filed Against Karda
Last January, celebrity Kim Kardashian and athletes Floyd Mayweather and Paul Pierce were named in a lawsuit for allegedly scamming their followers into investing in a cryptocurrency called EthereumMax.
The lawsuit alleged that the defendants propped up the crypto as a way to "instill trust" in investors, while disguising their control over a "significant portion" of the total Emax assets available for public trade.
The lawsuit said that while regular investors bought Emax coins, the defendants were offloading their own assets in exchange for profits it what is known in Wall Street circles as a pump-and-dump scheme.
Emax generated buzz in 2021 thanks in part to social-media endorsements from celebrities like Kardashian and Mayweather, peaking at $10.55 in September 2021. But the crypto is currently down 99.2%, according to data firm CoinGecko. In other words EMAX is worth nothing.
"Are you guys into crypto???? This is not financial advice but sharing what my friends just told me about the Ethereum Max token!" Kardashian, who has built an empire from her social-media influence, posted on Instagram on June 14, 2021. "A few minutes ago Ethereum Max burned 400 trillion tokens - literally 50% of their admin wallet, giving back to the entire E-Max community. Swipe up to join the E-Max community,"
The influencer, who had at the time 250 million followers, accompanied her post with several hashtags including #EMAX, #DISRUPTHISTORY and #ETHEREUMMAX.
"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."