Kim Kardashian’s SEC settlement is a warning to crypto influencers

Last year, Kim Kardashian posted an ad on Instagram touting a cryptocurrency token to her millions of followers. It was an expensive bit of promo – but not for the reasons anyone who saw the post at the time might have guessed.

On Monday, the Securities and Exchange Commission announced charges against Kardashian for that post and said the influencer would be fined $1 million as part of a settlement. It’s a big shot across the bow of the burgeoning crypto-celebrity nexus. Other potential coinfluencers preparing to have their goods should think twice before collecting a check to do so.

Kardashian promoted something called “EMAX tokens” from a company called EthereumMax. After a short video promising a “big announcement” to her more than 200 million followers, she wrote: “Are you guys into crypto????” She continued: “This is not financial advice, but sharing what my friends just told me about the Ethereum Max token! A few minutes ago, Ethereum Max burned 400 trillion tokens – literally 50% of their admin wallet gave back to the entire E -Max community.”

Although Kardashian claimed that “friends” told her about EthereumMax, the seventh and final hashtag she added to the story was “#ad,” the routine (and minimum) disclosure the Federal Trade Commission requires of influencers when they post sponsored content. Having run afoul of the FTC’s standards in the past, the Kardashians know the dark power #ad provides as a shield from liability when they do all kinds of crap to their followers. By slapping “#ad” on her post, Kim believed she cast what has become the influencer version of the evil eye against regulatory scrutiny.

But the SEC and the FTC are very different creatures – and cryptocurrency is no stomach tea. There’s a reason you don’t see ads on TV or online for specific securities like bonds or individual stocks; they are regulated much more strictly than ordinary goods and services. Instead, what we’ve seen from celebrities have mostly been commercials promoting crypto markets: for example, the weird Super Bowl ad for Crypto.com starring Matt Damon.

That difference matters. As the SEC wrote way back in 2017, four years before Kardashian’s post, virtual coins and tokens like the one she promoted “may be securities, and those offering and selling securities in the United States must comply with federal securities laws. ” EthereumMax in all marketing materials and public statements showed that it was less interested in acting as a currency or collectible than as an investment tool, implying that buying these tokens “would have had a reasonable expectation of profit from their investment in tokens,” as the SEC put it Monday.

These claims were also on EthereumMax’s website, which Kardashian linked to, suggesting that she supported these claims. But, the SEC stated in 2017, “any celebrity or other person promoting a virtual token or coin of value must disclose the nature, extent and amount of compensation received in exchange for the promotion.”

That’s where Kardashian went wrong. In announcing her settlement, the SEC said Monday that Kardashian had “failed to disclose that she was paid $250,000” for her campaign. Kardashian, who neither accepted nor denied the SEC’s findings, will pay a $1 million fine, about $10,000 in interest and forfeit the $250,000 the SEC says she was paid. She will also be banned from marketing crypto assets for the next three years.

It’s clear the SEC means to make an example of Kardashian. In 2018, when the commission sued DJ Khaled and boxer Floyd Mayweather for failing to disclose their payments from a company called Centra Tech to promote the sale of cryptocurrencies, the two simply paid a fine to have the charges go away with very little fuss or fanfare. Contrast that with Monday, when the SEC paired its announcement with a high-production-value video from chairman Gary Gensler warning about the pitfalls of crypto investing.