The Securities and Exchange Commission charged reality star and entrepreneur Kim Kardashian with promoting a cryptocurrency on her Instagram account without disclosing how much she was paid to do so, the agency announced Monday.
The star has 330 million Instagram followers, making her promotions quite valuable. And because she was hawking an investment product that the SEC says qualified as a security, the agency said Kardashian needed to detail what she was paid to ensure potential investors weren’t led astray.
“ARE YOU GUYS INTO CRYPTO????” she wrote in that post, including a link to EthereumMax’s website, which offered instructions for how to buy the token, the SEC said. “THIS IS NOT FINANCIAL ADVICE BUT SHARING WHAT MY FRIENDS JUST TOLD ME ABOUT THE ETHEREUM MAX TOKEN!”
Kardashian included a hashtag indicating that the post was an advertisement, but the SEC said she also needed to disclose the amount she was paid.
“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,” SEC Chair Gary Gensler said in a statement. “We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals.”
As part of the settlement, Kardashian has also agreed not to promote any crypto tokens for three years, the SEC said.
Patrick Gibbs, an attorney for Kardashian, said in a statement that his client was “pleased to have resolved this matter with the SEC.”
“Kardashian fully cooperated with the SEC from the very beginning, and she remains willing to do whatever she can to assist the SEC in this matter,” Gibbs said. “She wanted to get this matter behind her to avoid a protracted dispute. The agreement she reached with the SEC allows her to do that so that she can move forward with her many different business pursuits.”
The star — worth $1.8 billion, according to Forbes — has already faced heat for the promotion. Kardashian was named as a co-defendant in a class-action lawsuit filed in California earlier this year. The suit accused her and other celebrities touting EMAX with participating in a plan to inflate the value of the digital token. The cryptocurrency, which has no affiliation with the second-largest crypto, ether, has lost 94 percent of its value since then, according to data from CoinMarketCap. In her settlement with the agency, Kardashian neither admitted to nor denied the SEC’s findings.
This is not the first time the SEC has targeted a celebrity for not disclosing a payday from hyping crypto. The agency settled charges against boxer Floyd Mayweather Jr. and music producer DJ Khaled in November 2018 for touting several initial coin offerings — projects that sought to raise money by issuing crypto tokens — without revealing what they were paid for the endorsements. It settled similar charges against actor Steven Seagal in 2020.
Many other public figures have promoted crypto and web3 products for murky motives without catching the attention of federal regulators. A slew of so-called “crypto influencers” on YouTube and Twitter regularly hype tokens in which their ownership stake — and profit incentives — are not disclosed.
And Hollywood celebrities such as Jimmy Fallon and many others have talked up non-fungible tokens, or NFTs, they own while potentially benefiting from the price increases such talking can engender. This dynamic is rarely explained to the public.
Lartease Tiffith, executive vice president for public policy at the Interactive Advertising Bureau, a digital marketing trade association, said the SEC is aiming to send a message with the case against Kardashian. “The SEC does not have an unlimited amount of resources, but they take this stuff very seriously,” he said. “They wanted to make her an example so others will hopefully comply with the rules.”
The crypto industry reacted critically to the SEC’s move, saying that by imposing this punishment the agency was unilaterally seeking to shape policy. “It’s certainly a frustrating thing,” said Kristin Smith, executive director of Blockchain Association, the D.C.-based crypto trade group.
“We didn’t think EthereumMax was a security, and just because Gary Gensler thinks that doesn’t mean the courts would agree,” she added, referring to a long-simmering battle over whether crypto assets should be classified as securities or commodities. The former are often subject to tighter regulation, including the anti-touting provision Kardashian allegedly violated.
Smith said she believed laws needed to be passed clarifying the difference. “We’re seeing this trend of regulation by enforcement. And we really need Congress to step in because that’s not a very good way to make policy.”
Those paid to advise celebrities about their social-media accounts said that, legal and ethical questions aside, messages like the one Kardashian posted simply make for bad strategy.
“Any time a social-media client of mine wants to enter into a crypto partnership, my gut reaction is to steer clear,” said Liz Stahl, the president of Los Angeles-based social agency In Haus, which has worked with the likes of Ariana Grande and Pink, as well as brands such as Disney and Apple Music. “It’s dangerous to be posting something about a world so few people understand — including, often, the celebrity themselves.”
She said a crypto-related Super Bowl ad could be okay because the star would be insulated by the understanding the ad is a large enterprise on which they’re just a hired gun. “But on social media it all comes back to the perception that it’s the person posting.”
“So you’re really just setting yourself up for a backlash,” she said.
Correction: An earlier version of this story identified Lartease Tiffith as vice president for public policy at the Interactive Advertising Bureau; he is executive vice president for public policy at the group.