Kim Kardashian will pay $1.26 million to settle Securities and Exchange Commission fines that she violated US law by promoting a cryptocurrency token without disclosing that she was hired for the promotion.
The SEC announced on Monday that Kardashian was paid $250,000 to promote EMAX tokens, a crypto asset offered by EthereumMax, on her Instagram account. As part of the settlement, Kardashian agreed not to promote any digital assets for three years and did not admit or deny the regulator’s allegations.
Today we announced charges against Kim Kardashian for promoting a crypto security offered by EthereumMax without disclosing the payment she received for the promotion.
— U.S. Securities and Exchange Commission (@SECGov) October 3, 2022
Kardashian agreed to settle the charges, pay $1.26 million, and cooperate with the investigation.
Kardashian settled the case to avoid a protracted legal battle and “so that she can move forward with her many different business pursuits,” said Patrick Gibbs, a partner at the law firm Cooley who represents her. He went on to say that she “fully cooperated with the SEC from the beginning, and she remains willing to do whatever she can to assist the SEC in this matter.”
Wall Street’s top regulator has previously warned that celebrities promoting cryptocurrencies deemed securities must disclose to investors whether they are compensated for their support. The regulator fined boxer Floyd Mayweather and music producer DJ Khaled in 2018 for failing to disclose payments for promoting initial coin offerings.
The SEC noted Kardashian included “#AD” at the bottom of the post in 2021. Despite this, it said that investors were not made aware of her payment for the advertisement.
According to Coy Garrison, a partner at Steptoe & Johnson, the main difference between Kardashian’s settlement and previous ones involving digital assets is the size of the penalty. “The higher penalty suggests that the SEC is taking a tougher stance against celebrities and believes that celebrities are on notice of their need to comply with the anti-touting provision of the securities laws with respect to crypto assets,” said Garrison, a former SEC employee.
Many virtual tokens, according to Wall Street’s main regulator, are securities and thus subject to its jurisdiction. The SEC uses a legal test derived from a 1946 Supreme Court decision to determine whether something is a security. Under that framework, an asset can fall under SEC jurisdiction if it involves investors putting money in with the intent of profiting from the organization’s leadership efforts.
Last year, the UK’s financial regulator singled out the advertisement as part of a crackdown on crypto endorsements by social influencers. According to Charles Randell, then-chairman of the Financial Conduct Authority, Kardashian’s Instagram post “may have been the financial promotion with the single biggest audience reach in history.”
Image Credit: Shutterstock
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