Why Kim Kardashian was charged by the SEC, and how other celebrities might avoid crypto trouble

Mega-influencer Kim Kardashian agreed to pay $1.26 million in penalties to the Securities and Exchange Commission to settle charges that she illicitly touted a cryptocurrency token on social media without disclosing how much she was paid for the promotion, the SEC said Monday. 

In June 2021, Kardashian posted an Instagram story inviting her 328 million followers to invest in EthereumMax. 

“This is not financial advice,” Kardashian wrote in her story. “But sharing what my friends just told me about the Ethereum Max token!” Among other hashtags, she included the word “ad.”

Kardashian was one of many celebrities who was part of a crypto craze in 2021, which included intense interest, advertising, and funding of cryptocurrencies and their related technologies. Cryptocurrencies are digital assets, such as Bitcoin, which can be bought and sold via cryptocurrency exchanges. EthereumMax is a cryptocurrency token, which is a tradable asset built on pre-existing cryptocurrency technology. It was one of several tokens that raised suspicions from skeptics because of the amount of promotion it was receiving online.

SEC Chair Gary Gensler said in a news release unveiling the charges that the law requires celebrities “to disclose to the public when and how much they are paid to promote investing in securities.” The SEC said Kardashian failed to disclose that she had been paid $250,000 to promote the token. While Kardashian didn’t admit to wrongdoing in the settlement, according to the SEC news release, she agreed she won’t advertise anything crypto-related for the next three years. 

Eric Chaffee, a distinguished university professor at the University of Toledo College of Law, said Kardashian could have tried to argue that “#ad” is enough to satisfy the SEC’s rules, but in its filing against Kardashian, the SEC noted that the Securities Act explicitly requires the disclosure of the amount received for the publicity of a security. The fact that Kardashian chose to settle the case means any nuance about how the SEC might look at such cases will be lost for now, Chaffee said. In the meantime, the SEC will most likely maintain a strict view about the need for clear language about how a celebrity is being compensated for promoting any asset, including a digital one, he said.     

Representatives for Kardashian and EtheriumMax didn’t immediately respond to requests for comment.

Kardashian and other celebrity advertisers were sued in January by people who had invested in the coin. Boxer Floyd Mayweather Jr., basketball player Paul Pierce and football player Antonio Brown were also named as defendants in the lawsuit, which is in progress in the U.S. District Court for Central California.

The SEC hasn’t announced charges against the other advertisers named in that suit related to EthereumMax. Two years ago, Mayweather and music producer DJ Khaled were charged with promoting an initial coin offering without revealing their compensation. Mayweather paid penalties totaling $614,775, while Khaled paid $152,725, according to an SEC release. Neither admitted or denied the charges or immediately responded to requests for comment.

Unlike Kardashian and other celebrities who promoted EthereumMax, celebrities like Matt Damon, Larry David and Tom Brady chose to promote cryptocurrency exchanges where cryptocurrencies and tokens are bought and sold, not crypto assets themselves. That puts them beyond the jurisdiction of the SEC, Chaffee said.

At the height of the crypto craze, numerous celebrities and influencers promoted a slew of coins and cryptocurrencies with names like “#SafeMoon” and “$TITScoin.” Over a year later, the value of many of those tokens has plummeted, leaving investors with less valuable assets than when they bought them.

As the crypto wave has receded, coalitions that warn against the industry — some that are organized and include lobbyists and politicians, others that are consumer-driven — have started to push back against the influential people who promoted what some view as scams.

Other celebrities have faced penalties similar to Kardashian’s. In February 2020, actor Steven Segal was charged with failing to reveal how he was being compensated when he promoted a digital asset being offered by a cryptocurrency company. Segal agreed to pay penalties totaling $314,000. Segal neither admitted to nor denied the charges. According to CNBC, a representative for Segal said that “Mr. Seagal was not involved in the creation of this product” and that “to him, it was simply a case of someone paying a celebrity for the use of his image to promote a product.”

source: nbcnews.com