The Securities and Exchange Commission has filed a lawsuit against Kim Kardashian, alleging that she promoted a cryptocurrency without disclosing that she was being paid for the advertisement. Kim Kardashian has agreed to pay $1.26 million as part of the settlement.
According to the SEC’s announcement on Monday, Kardashian is making the payment without acknowledging or disputing its conclusions. She also pledged to refrain from promoting any crypto asset securities for the next three years.
The penalty relates to the cryptocurrency EthereumMax, also known as EMAX, which was promoted to investors as a revolutionary new cryptocurrency. Along with former NBA star Paul Pierce and boxer Floyd Mayweather, celebrities like Kim Kardashian promoted cryptocurrencies using their notoriety. In January, a class-action lawsuit was filed against these celebrities for their sponsorships.
The SEC Chair, Gary Gensler, stated in a statement that this action serves as a reminder that just because a celebrity or other influential person recommends investment options, including securities backed by crypto assets, doesn’t indicate that those products are suitable for all investors.
Data from CoinMarketCap shows that when EMAX first started trading in May of last year, there were $16.1 million worth of transactions. According to the lawsuit, that figure increased as a result of social media posts by Kardashian and Pierce, as well as incentives by Mayweather, such as signed boxing gloves, ringside tickets, and discounts to individuals who purchased fight tickets online using EMAX Tokens. EMAX’s trade volume peaked at around $108 million at one point.
In the lawsuit, it is claimed that the inventors of the virtual currency, Connecticut’s Steve Gentile and Florida’s Giovanni Perone, sold their EthereumMax holdings “for large gains” as the buzz surrounding the coin grew.
Monday morning, the price of EMAX dropped 3.3% to the equivalent of 0.000000004246 cents, according to CoinMarketCap.
Securities regulators estimate that at the time she advertised EMAX, Kardashian had almost 225 million Instagram followers.
According to a legal statement by the SEC, “Kardashian marketed a crypto asset security on her Instagram account in consideration for monetary payment from the issuer.”
Kardashian will help the agency’s continuing probe, according to the statement.
It has generally been challenging to bring legal action against celebrities who endorse things because attorneys must demonstrate the endorser received their income illegally. The SEC said that Kardashian did not disclose that she received $250,000 in exchange for posting about EMAX tokens on her Instagram account. In addition, Kardashian’s post included a link to the EthereumMax website, which offered guidance on how interested investors may buy EMAX tokens.
According to the SEC’s division of enforcement head Gurbir Grewal, “any celebrity or other individual who promotes a crypto asset security must disclose the kind, source, and amount of remuneration they received in exchange for the promotion.”
According to the SEC, Kardashian will pay a $1 million fine, $260,000 in disgorgement (which would represent the money she made from advertising the cryptocurrency plus interest), and another $260,000 in disgorgement.
Kardashian is hardly the only famous person whose engagement with cryptocurrencies has caught the attention of regulators. In 2018, the government reached a resolution with Mayweather and music producer DJ Khaled over allegations that they failed to disclose payments they received for encouraging cryptocurrency investments.