Messing Up With The Kardashians: Kim Fined $1m For Crypto Promo

October 4, 2022
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Kim Kardashian must pay more than $1m to settle charges by the US Securities and Exchange Commission following her misadventure into the crypto world, after a dressing down by UK regulators last year.

Kim Kardashian must pay more than $1m to settle charges by the US Securities and Exchange Commission (SEC) following her misadventure into the crypto world, after a dressing down by UK regulators last year.

Kardashian will pay $1.26m to the US securities regulator after she touted the EthereumMax crypto security on social media without disclosing that she received payment for the promotion.

Last June, Kardashian posted on her Instagram to her 225m followers: “Are you guys into crypto???? This is not financial advice but sharing what my friends just told me about the Ethereum Max token!”

Kardashian’s post contained a link to the EthereumMax website, which gave instructions for potential investors on how to purchase the tokens.

The reality TV star included the hashtag #ad in the message but she did not disclose that she had been paid for making the post. According to the SEC, Kardashian received $250,000 for the promotion.

"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," he added.

EthereumMax launched in May, a month before Kardashian’s misfired post, and lost 98 percent of its value by mid-July.

The extreme fall made many wonder whether EthereumMax was a pump-and-dump scheme. In this type of fraud, a token’s price is artificially inflated via celebrity endorsement after which scammers sell their assets before its price drops.

Last year, Charles Randell, the chair of the UK's Financial Conduct Authority (FCA), called out Kardashian’s promotion of the EthereumMax token, arguing for legislation in the UK to create a permanent and consistent solution to protect would-be investors.

“I can’t say whether this particular token is a scam, but social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation,” he said.

Following Randell’s statements, in January, the celebrity was hit with a class action lawsuit in California, at that point explicitly accused of taking part in a pump and dump scheme.

The lawsuit also pointed out that EthereumMax has no connection at all to Ethereum, the second largest cryptocurrency, and its name is likely an effort to mislead investors.

The SEC has now charged Kardashian with violation of the anti-touting provision of the federal securities laws.

Kardashian agreed to pay $260,000 in disgorgement, which represents her promotional payment, plus prejudgment interest, and a $1m penalty.

The celebrity is also prohibited from promoting any crypto-asset securities for three years.

"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," Gensler added.

The $1.26m fine “is a stark warning to other celebrities not to dabble in the dark world of crypto to make a quick buck,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said.

“This is a severe dressing down both financially and in terms of reputation for the queen of reality TV who has agreed not to promote any crypto-asset securities for three years,” she pointed out.

Streeter also cautioned that “the rollercoaster ride of crypto is far from over and regulators are determined to stop more consumers from being caught up in a sharp downward spiral of prices".

Kardashian did not reply to a request for comment by the time of publication.

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