Reality tv star and entrepreneur Kim Kardashian has agreed to settle charges brought by the ... [+]
Kim Kardashian's crypto fiasco may be a warning for other celebrities looking to make a quick buck by posting ads for crypto companies without disclosing their compensation to the feds.
Securities and Exchange Commission (SEC) Chair Gary Gensler said that the case should serve 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.
"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."
The SEC announced the charges against the social media superstar on Monday. The SEC's order found that Kardashian failed to disclose that she was paid $250,000 to publish a post on her Instagram account about EMAX tokens.
Mega Fine For Kardashian
The mega-influencer agreed to pay a mega-fine of $1.26 million in penalties, disgorgement, and interest, and cooperate with the Commission's ongoing investigation to the SEC to settle the charges that she had illicitly touted the crypto tokens via her Instagram account – inviting her 328 million followers to invest.
"This is not financial advice," Kardashian wrote in her June 2021 post to Instagram. "But sharing what my friends just told me about the EthereumMax token!"
Among the various hashtags included was "#ad," but the post also included a link to EthereumMax's website, which provided instructions on how to buy the digital tokens.
Some experts have suggested that Kardashian could have tried to argue that the "#ad" was enough to satisfy the SEC's rules, yet in its filing against the influencer, the SEC also noted that the Securities Act explicitly requires the disclosure of the amount received for the publicity of a security.
At no point in her post did Kardashian disclose that she was paid $250,000 to promote the EMAX tokens.
"Kim Kardashian isn't the only celebrity to get into crypto trouble," explained technology analyst Charles King of Pund-IT via an email.
"In 2018, Boxer Floyd Mayweather and music producer DJ Khaled paid, respectively $600k and $150k in SEC fines for failing to disclose fees they were paid for endorsing Centra Tech," King continued.
Investment Advice On Social Media
The SEC actually encourages investors to conduct their own research, and it also discourages anyone from relying on paid endorsements from celebrities. Yet today, many young investors continue to turn to social media, and notably influencers on the platforms, for sage financial advice. According to a 2021 CreditCards.com survey, about 52% of millennials and Generation Z received financial advice from the social media networks including Facebook and Instagram, and found the advice offered to be trustworthy.
The SEC may target other influencers and celebrities who have failed to disclose they were paid to promote crypto, and Kardashian may be the first, not the last to face such scrutiny and fines from the SEC.
"Given her high public profile, Kim Kardashian's $1.26M fine could be evidence that the SEC has crypto-promoting celebrities, like Tom Brady and Matt Damon in their sights, as well," he added. "The SEC fine isn't likely to hurt Kardashian much, at least financially but investors are reportedly suing her and Mayweather for failing to disclose the payments they received from EthereumMax."
The EMAX crypto has lost 95% of its value since Kardashian had promoted it. As a result, even if many of the celebrities who touted the virtues of crypto on social media don't face scrutiny from the SEC, it is likely few will continue to promote digital currencies going forward.
"Those are risks that sensible people, even celebrities, would prefer to avoid," said King, adding, "Especially considering the relatively paltry $250k Kardashian received for her endorsement."
