Kim Kardashian

Class action against Kim K, Mayweather over EMAX dismissed… for now

Despite dismissing the case, the judge acknowledged the lawsuit reflects a potentially dangerous trend of fraudulent-like promotional schemes.

A federal judge in California has dismissed a class action lawsuit against reality TV star Kim Kardashian, boxing champ Floyd Mayweather and the founders of EthereumMax, explaining that the submissions failed to meet the “heightened pleading standards” for fraud claims.

The judge has, however, left room for the plaintiffs to refile the lawsuit if certain provisions are amended.

In the original Jan. 7 court filing by Scott+Scott Attorneys At Law, the plaintiffs argued that Kardashian, Mayweather and former NBA superstar Paul Pierce didn’t disclose they were being paid to promote EthereumMax (EMAX).

The plaintiffs alleged that they used “false or misleading statements” to “artificially inflate the price of the token.”

Kardashian promoted EMAX in a June 2021 post on Instagram, while Mayweather wore the EMAX logo on his boxing trunks in a match against YouTube star Logan Paul that same month.

According to reports, Judge Michael Fitzgerald dismissed the lawsuit Dec. 7 on the grounds that the fraud allegations lacked merit and that investors at the end of the day have a responsibility to conduct due diligence on their investments:

“But, while the law certainly places limits on those advertisers, it also expects investors to act reasonably before basing their bets on the zeitgeist of the moment.”

However, Judge Fitzgerald acknowledged in his dismissal the power that celebrities have been afforded by new technologies and social media platforms in establishing potentially fraudulent promotional schemes.

“This action demonstrates that just about anyone with the technical skills and/or connections can mint a new currency and create their own digital market overnight,” Fitzgerald reportedly wrote in his dismissal.

Celebrities now have the ability to “readily persuade millions of undiscerning followers to buy snake oil with unprecedented ease and reach,” he added.

Despite the dismissal, the investors’ fight may not be over. Fitzgerald reportedly stated that he’d allow the plaintiffs to refile the lawsuit if their legal team amended a few provisions from its original filing, with the judge making reference to a provision of the Racketeer Influenced and Corrupt Organizations Act (RICO).

Kardashian has already been bitten once before over her promotion of EthereumMax on her social media account.

On Oct. 3, Kardashian reached a $1.26 million settlement with the U.S. Securities Exchange Commission after allegedly failing to disclose she was paid $250,000 to promote EthereumMax.

Mayweather’s legal team has long denied any affiliation with the EthereumMax, with his attorneys stating that the filing did not “identify a single statement made by Mayweather about eMax tokens or EthereumMax.”

Taking down crypto influencers is one step that would help to heal the market

The EU moved in the right direction by passing a law requiring influencers to disclose the risks associated with crypto. More countries should follow their lead.

However, the crypto space is notoriously fickle, and the collapse of once-established companies such as Celsius and FTX are stark examples of how people can lose billions of dollars in crypto assets almost overnight.

For this reason, celebrity influencers should be thoroughly educated on a crypto product before promoting it. With so much at stake, this is a point that shouldn’t be overlooked by anyone in the industry.

Because of these huge risks, regulators are now asking questions regarding the ethics of celebrities using their considerable pull to draw people into crypto. And they’re not stopping at that; more jurisdictions are imposing stringent conditions for celebrities to pawn crypto products to the masses.

1/ Let’s review all the direct scams Bitboy has worked with in the past. Just in case you forgot here is the flyer with how much he charges.

I received this a while back by posing as a project interested in a promotion.
pic.twitter.com/FkC9HUDGsc

— ZachXBT (@zachxbt) January 3, 2022

For example, in the European Union, a new set of regulations known as MiCA laws will require crypto influencers to fully disclose the financial risks associated with the products they’re advertising.

Singapore is instituting even more stringent measures. The city-state will only allow crypto companies to advertise their products on their own platforms while completely barring influencers from promoting any crypto asset on social media.

What about tech entrepreneurs boosting crypto on social media?

While restricting or banning celebrities and social media influencers from pushing crypto might be commendable, another question remains unanswered. What should be done about billionaire entrepreneurs whose words have the power to influence the trajectory of crypto?

Twitter’s new owner, Elon Musk, is a known crypto proponent and a big Dogecoin (DOGE) fan. As an example of his massive influence in the crypto space, on Tuesday, April 25, just hours after his intention to buy Twitter became public, the memecoin’s price jumped by nearly 23% to $0.1677. That price was the highest it had been since January 14, when it traded at $0.2032.

And, that wasn’t the only time: Several of Musk’s DOGE-related posts and comments from the past year also caused the cryptocurrency’s price to either rise or fall, depending on the sentiment Musk was sharing.

Binance CEO Changpeng Zhao, better known as CZ, is another influential voice in crypto. A casual tweet from him announcing his company was creating an industry recovery fund to help ameliorate the adverse effects of FTX’s collapse caused a surge in the price of Bitcoin (BTC) and the broader crypto market. While CZ didn’t specify the projects that the fund would be propping, or when it would become active, the news still caused BTC prices to shoot to almost $17,000.

We must consider the power of such individuals as far as influencing what we buy or sell is concerned. Regulators cannot treat the likes of Musk and CZ like ordinary people. Their words hold too much weight, especially for an industry as volatile as crypto.

Some have suggested that a Twitter spat between CZ and former FTX CEO Sam Bankman-Fried could have been the spark that caused the fire that burned FTX to the ground. These people cannot use their words so frivolously, especially not on social media.

And, while CZ has since refuted the claims that he shorted the FTX Token (FTT), can we trust this to be true? After all, Binance stood to gain the most from FTX’s collapse as it now becomes the biggest crypto exchange in the world.

This might come off as controversial, but there might be a case for the likes of Musk and CZ to have their activities regulated too. After all, their voices have a significant influence in the crypto space. A whimsical social media post from someone in their rarified position can create significant upheaval in the crypto market.

Sadly, such regulation might feel like an infringement on their freedoms. Therefore, the best solution would be for them to exercise greater caution in their utterances. With great power comes great responsibility, and people like them should lead by example by watching what they say. It would be unfortunate if it takes regulation to make them do so.

Benefits and drawbacks of celebrity crypto promotions

We’ve seen how Kim Kardashian and Floyd Mayweather faced legal action for unlawfully promoting crypto tokens. New Yorker Ryan Huegerich sued Mayweather, accusing the boxer of misleading investors while promoting the EMax token. The Securities and Exchange Commission, meanwhile, levied a fine on Kardashian.

The biggest problem with using celebrities to advertise crypto? While they usually command huge and eager followings, their audiences, more often than not, have little, if any, knowledge of crypto. Additionally, celebrities often have no idea about the risks associated with the products they’re promoting.

Of course, the upside of celebrity influencers endorsing crypto is the inevitable buzz they create and the vast network of influence they command. Kardashian, for example, has more than 250 million followers on Instagram. Additionally, these followers are usually hard-wired to trust the opinions of celebrities, however uneducated they might sound.

But, celebrities are also prisoners of the court of public opinion. Any PR gaffe on their part could easily crash and burn a crypto project.

And did I mention how expensive celebrities can be? Reports indicate that a promotional post on Kim Kardashian’s Instagram page will set you back anywhere between $300,000 and $1 million.

Regulations will undoubtedly help to protect us against lousy crypto decisions, but our best defense is a clear eye and lots of research. Nothing beats digging up as much information as possible about a project before putting your money into it.

Crypto winter has wrought untold havoc on investments, and it’s been exacerbated by the careless actions of some major players in the industry. The fall of companies such as FTX, Voyager, 3AC, Terra, Celsius and BlockFi only strengthen calls for the regulation of crypto.

Amid the drama, the role of celebrity endorsers should not be overlooked. As an industry, we need to find ways to ethically leverage celebrities’ popularity to promote our products.

In addition to working with the laws being put in place, I think it would be best if crypto projects thoroughly educated potential celebrity advertisers on the benefits and risks of their products. This way, influencers will be better placed to give a truer picture of what they’re selling rather than just settling for a big paycheck. I believe a little honesty will go a long way in repairing crypto’s tattered reputation.

Anastasia Kor is the chief marketing officer and a board member of crypto firm Choise.com. Before joining the company, she received degrees in economics and management from Gubkin State University of Oil and Gas, in addition to a master’s degree in marketing. She previously worked as a marketing manager for CINDX Platform.

The author, who disclosed their identity to Cointelegraph, used a pseudonym for this article. This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Famous people often have a tremendous influence on the attitudes we adopt and the decisions we make. For this reason, the crypto industry has increasingly leveraged such individuals to promote their products.

Saying ‘not financial advice’ won’t keep you out of jail: Crypto lawyers

Australian and U.S. digital asset lawyers told Cointelegraph that by and large, the words on their own as “pretty useless.”

Crypto influencers may need to practice what they preach and “do their own research” when it comes to sharing their crypto tips.

According to several digital asset lawyers, the popular disclaimer “this is not financial advice” — may not actually protect them in the eyes of the law.

United-States-based securities lawyer Matthew Nielsen from Bracewell LLP told Cointelegraph that while its “best practice” for influencers to disclose that “this is not financial advice,” simply saying the term will not protect them from the law as the “federal and state securities laws heavily regulate who can offer investment advice.”

Australian financial regulatory lawyer Liam Hennessy, a partner at Gadens, explained that “advice warnings” are “by and large pretty useless,” while Australian digital lawyer Michael Bacina of Piper Alderman added that they aren’t “magic words which when uttered will disclaim liability.”

Crypto influencers and celebrity ambassadors have been increasingly finding themselves under the scrutiny of regulations, particularly in the United States.

Nielsen cited the recent Kim Kardashian case as an example, where Kardashian was charged by the SEC for failing to disclose how much she received to promote EthereumMax to her followers.

Influencers feeling the pressure

Crypto influencer Mason Versluis, aka Crypto Mason, who has over a million followers on Tik Tok, told Cointelegraph that he can’t stress enough to his followers that his content should not “be taken as financial advice.”

Versluis however said that despite using the disclaimer “this is not financial advice,” it’s important for influencers to be mindful that some people do “make financial moves according to what certain influencers say.”

He also stressed how difficult it can be to determine whether a project will end up in a “rug pull” situation as influencers “simply deal with the marketing team,” and generally have no contact “with any of the developers or owners.”

Australian crypto influencer Ivan Vantagiato, aka Crypto Serpent who has amassed 68,000 followers on Tik Tok says that influencers should do their due diligence researching a crypto project before running a promotion.

Hennessy believes the best way for crypto influencers to protect themselves is to be able to determine “what token is a security and what token is not a security.”

He further explained that it’s critical to understand that a “derivative is a product that derives its value from something else,” and you can be “criminally liable” for promoting derivatives.

Meanwhile, Bacina noted that an influencer residing in Australia is required to have a license to give out financial advice, and that “no disclaimer is going to give protection.”

Saying ‘not financial advice’ won’t keep you out of jail — Crypto lawyers

Australian and U.S. digital asset lawyers told Cointelegraph that, by and large, the words on their own are “pretty useless.”

Crypto influencers may need to practice what they preach and “do their own research” when it comes to sharing their crypto tips.

According to several digital asset lawyers, the popular disclaimer “This is not financial advice” may not actually protect them in the eyes of the law.

United States-based securities lawyer Matthew Nielsen from Bracewell LLP told Cointelegraph that while it’s “best practice” for influencers to disclose that “this is not financial advice,” simply saying the term will not protect them from the law, as “federal and state securities laws heavily regulate who can offer investment advice.”

Crypto influencers and celebrity ambassadors have been increasingly finding themselves under the scrutiny of regulations, particularly in the United States.

Nielsen cited the recent Kim Kardashian case as an example, where Kardashian was charged by the SEC for failing to disclose how much she received to promote EthereumMax (EMAX) to her followers.

Influencers feeling the pressure

Crypto influencer Mason Versluis, aka Crypto Mason, who has over a million followers on TikTok, told Cointelegraph that he can’t stress enough to his followers that his content should not “be taken as financial advice.”

Versluis, however, said that despite using the disclaimer “This is not financial advice,” it’s important for influencers to be mindful that some people do “make financial moves according to what certain influencers say.”

He also stressed how difficult it can be to determine whether a project will end up in a “rug pull” situation, as influencers “simply deal with the marketing team” and generally have no contact “with any of the developers or owners.”

Australian crypto influencer Ivan Vantagiato, aka Crypto Serpent, who has amassed 68,000 followers on TikTok, said that influencers should do their due diligence researching a crypto project before running a promotion.

Hennessy believes the best way for crypto influencers to protect themselves is to be able to determine “what token is a security and what token is not a security.”

He further explained that it’s critical to understand that a “derivative is a product that derives its value from something else” and that you can be “criminally liable” for promoting derivatives.

Meanwhile, Bacina noted that an influencer residing in Australia is required to have a license to give out financial advice and that “no disclaimer is going to give protection.”

The SEC should be aiming at Do Kwon — But it’s getting distracted by Kim Kardashian

Do Kwon should be front-and-center for scrutiny from regulators. Instead, they’re getting distracted by grandstanding over Kim Kardashian.

In less than a week, Terraform Labs founder Do Kwon’s passport will expire. Interpol issued a red notice for Kwon last month, and this month, his assets were reportedly frozen by the South Korean government.

Kwon has been tweeting freely in response — and almost always denies the reports. “I don’t know whose funds they’ve frozen, but good for them, hope they use it for good,” he wrote in one message. Playing a game of cat and mouse with both the authorities and the public, Kwon seems to be living a life of freedom while enjoying his internet access.

Meanwhile, regulators with the United States Securities and Exchange Commission have been highly vocal in reprimanding Kim Kardashian and other celebrities for shilling assorted cryptocurrency projects. Although they deserve to be rebuked, bad actors like Kwon continue to elude the long arm of regulatory bodies.

Kim Kardashian shilling crypto is the tip of the iceberg

Kardashian promised the SEC she’d pay a $1.26-million settlement after promoting EthereumMax (EMAX) on her Instagram account. Rightfully, the reality star was penalized because she failed to disclose the $250,000 she was paid to shill the shitcoin, which plummeted 98% shortly after her endorsement. (She disclosed that she was paid but not the exact amount.)

Following the court ruling, SEC Chairman Gary Gensler proclaimed, “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.” He added that the case was “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.”

Fine words indeed. But Gensler’s grandstanding with celebrity wrist-slapping is a case of style over substance. Clear pump-and-dump schemes shouldn’t go unpunished, but the priorities of regulatory bodies are clearly skewed. There are far bigger fish in the crypto pond that should be incurring the SEC’s wrath.

The damage caused by Do Kwon

Kardashian touting EMAX isn’t a great look for crypto, and the SEC was right to charge her. But it’s not a patch on the damage done by Kwon, which the SEC failed to avert. The May collapse of Terraform’s stablecoin and its cryptocurrency, LUNA, wiped roughly $50 billion in value out of the market over the course of a week. Before its crash, LUNA was one of the top 10 largest cryptocurrencies on the market.

The SEC first issued a subpoena to Kwon and his company in 2021. Kwon, ever the anti-authoritarian, responded by saying he wouldn’t comply with the demands and would instead sue the SEC. Although little came of his countersuit, it clearly demonstrated his disregard for the agency.

Today, it seems the SEC has forgotten about Kwon. It was South Korea — not the U.S. — that prompted Interpol to issue a red notice for Kwon, an official order to law enforcement across the globe to locate and arrest the wanted person.

Apparently, the SEC has passed the buck to South Korea and Interpol. Instead, the agency is going after the likes of Ripple and Coinbase — despite the fact that legislators in the U.S. and beyond still haven’t even defined digital assets.

The damage done by Kwon goes far beyond simple numbers. In some cases, it cost victims their lives.

The last thing we need in this time of turbulence for global markets is uncertainty driven by shady and (allegedly) criminal actors. Kwon has invited regulation from authorities, so perhaps that’s part of the reason the SEC has been slow to follow South Korea’s lead in issuing a strong rebuke.

Proper regulations wouldn’t necessarily be bad, but it’s hard to judge what “proper” looks like before regulators have enforced the laws that already exist.

Zac Colbert is a digital marketer by day and a freelance writer by night. He’s been covering digital culture since 2007.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

The SEC should be aiming at Do Kwon, but it’s getting distracted by Kim Kardashian

Do Kwon should be front-and-center for scrutiny from regulators. Instead, they’re getting distracted by grandstanding over Kim Kardashian.

Kim Kardashian shilling crypto is the tip of the iceberg

The damage caused by Do Kwon

The damage done by Kwon goes far beyond simple numbers. In some cases, it cost victims their lives.

Proper regulations wouldn’t necessarily be bad, but it’s hard to judge what “proper” looks like before regulators have enforced the laws that already exist.

Zac Colbert is a digital marketer by day and a freelance writer by night. He’s been covering digital culture since 2007.

Kim Kardashian’s Ethereum Max ad violated the SEC’s anti-touting provision

Kim Kardashian disclosed that she was paid for promoting Ethereum Max — but didn’t tell her followers the exact amount. The SEC did the right thing when it fined her for that oversight.

In June 2021, Kim Kardashian published an Instagram story informing her approximately 330 million Instagram followers about the EthereumMax (EMAX) crypto token. The Securities and Exchange Commission (SEC) charged Kardashian, claiming she violated the anti-touting provision of the Securities Act when she failed to disclose she received $250,000 in exchange for her promotion of the unregistered security.

The charges incited a public debate — is the requirement to disclose the amount paid to promote an investment opportunity important?

What’s new? Celebrities and social media influencers have long enjoyed a lucrative revenue stream in promoting and endorsing services and products ranging from clothing to beauty products, and even supplements and medications. The Federal Trade Commission (FTC) regulates endorsements by requiring various acts and disclosures, including whether a financial relationship exists between the endorser and the company, whether a post was paid for and even by requiring an endorser to personally try a product before endorsing it. Still, the FTC does not go so far as to require endorsers to disclose the amount they were paid to promote a product.

So, what’s different here? This time, the “product” is an investment opportunity falling under the watchful eye of the SEC. As is required by the FTC’s Endorsement and Testimonial Guidelines, Kardashian made sure to include disclaimers such as “#Ad” and even “this is not financial advice,” but that’s not sufficient under the SEC’s regulations, which also required Kardashian to disclose that she was paid $250,000 by EthereumMax to “tout” the token.

The SEC’s charges in response to Kardashian’s seemingly compliant post revealed what appears to be the beginning of the federal agencies’ heightened regulation and required transparency in connection with endorsements, specifically of highly speculative assets. The charges also beg the question – just how much transparency is important?

Some will argue that Kardashian’s “#Ad” and “this is not financial advice” disclosures — which would suffice under the FTC’s requirements — are enough to place her followers on notice that she is a biased, interested promoter of EthereumMax, and that the SEC’s anti-touting provision’s requirement to disclose the exact amount of consideration is senseless. In other words, merely disclosing that she was paid $250,000 to promote the token would not have made a material difference to her followers in their decision to invest.

However, whether or not a particular disclosure is material to a potential investor is a question best answered by the investor in question. The SEC’s existence is predicated on protecting the investing public. To do so, potential investors should receive as much information as possible to assist them in their decision-making.

*Price of Ethereum Max from November 2021-October 2022. Source: CoinGecko*

Although the difference between celebrities receiving $100,000 versus $200,000 for a social media post may not appear material to investors, a $1,000,000 check may alter potential investors’ perception about a celebrity’s inclination to make statements that conflict with or disregard their true beliefs, experience or even lack of knowledge. This tipping point in judgment may differ from investor to investor; therefore, such information should be disclosed and freely evaluated by the investing public.

The trend toward broader disclosure is prevalent. The FTC recently proposed an amendment to its Endorsement Guidelines on Digital Advertising to address the growing influencer market. Of relevance is Section 255.5, “Disclosure of Material Connections,” which proposes the clear and conspicuous disclosure of material connections that may materially affect the weight or credibility of the endorsement, including “business, family, or personal relationships; monetary payments; the provision of free or discounted products or services to the endorser; early access to the product; or the possibility of winning a prize, of being paid, or of appearing on television or in other media promotions.”

With such disclosures, the appeal of investing in the same companies as their favorite celebrities and influencers might be lost if fans realized the only connection between a celebrity and a promoted product was a hefty check. On the other hand, if followers are aware of a “material connection” between a celebrity and an endorsed product, they may be even more inclined to invest. Regardless, the argument remains — the more information disclosed to the investing public, the more educated their decision-making can be.

SEC Chairman Gary Gensler wasted no time making media appearances to echo the same, warning the general public that celebrities’ incentives aren’t typically aligned with consumers’ best interests. In the SEC’s press release, Gensler emphasized that celebrities and influencers must be mindful that the law requires them to make heightened disclosures to protect individuals who may rely on them for “financial advice.”

Celebrities wield significant influence on their fan bases. Many who endorse investment opportunities do not have sufficient expertise to ensure that the investment is appropriate and complies with U.S. securities laws. As a result, celebrities such as Kardashian have the power to influence millions of individuals to make uninformed decisions solely based on their admiration, trust and loyalty.

Kardashian’s $1.6 million settlement is a reminder that the SEC has an exceptionally high interest in regulating highly speculative asset classes like crypto tokens and will continue to press charges against those with a great deal of influence for unlawfully touting crypto securities. The investing public should beware and always conduct their independent due diligence. The SEC should continue to require broad disclosures from endorsers to allow for and support such due diligence.

Gai Sher is senior counsel in the innovation and technology practice group and the corporate & business and entertainment & sports practice groups at Greenspoon Marder LLP. Originally from Israel, she attended Syracuse University for her undergraduate degrees before obtaining a Juris Doctor from Northeastern University’s School of Law.

Ariela Benchlouch is a law clerk in Greenspoon Marder’s innovation & technology practice group. With a background and passion for entertainment law, music, fashion, media, and blockchain technology, she previously held legal intern roles at LAA Sports & Entertainment and PlayOne NFT.

How Crypto Twitter reacted to Kim Kardashian’s $1.26M SEC fine

Some pointed out the regulator’s supposed hypocrisy, others told crypto-influencers to lawyer up, while a few poked fun at the reality TV star.

The crypto community reacted with a mix of disbelief and amusement after reality star Kim Kardashian was fined for promoting the cryptocurrency EthereumMax (EMAX).

The United States Securities and Exchange Commission (SEC) fined Kardashian $1.26 million on Oct. 3, for “touting on social media” about the EMAX without disclosing she was paid $250,000 to post about it.

Kardashian has neither admitted to nor denied the SEC’s allegations, but settled the charges and agreed to not promote any cryptocurrency assets until 2025.

SEC chairman Gary Gensler tweeted the fine was a reminder that celebrity endorsement of investment opportunities doesn’t “mean those investment products are right for all investors.”

Today @SECGov, we charged Kim Kardashian for unlawfully touting a crypto security.

This case is a reminder that, when celebrities / influencers endorse investment opps, including crypto asset securities, it doesn’t mean those investment products are right for all investors.

— Gary Gensler (@GaryGensler) October 3, 2022

Following Gensler’s tweet, the online crypto community expressed their thoughts on the fine, with some calling out the SEC for its inconsistent enforcement decisions.

Economist Peter Schiff, known for his anti-Bitcoin (BTC) stance, pointed out what he perceived was an unfair targeting of Kardashian as the SEC hasn’t fined MicroStrategy co-founder Michael Saylor who he believes has “more to gain pumping crypto.”

The SEC is fining @KimKardashian $1.2 million for pumping #crypto. What about the real pumpers? @Saylor had much more to gain pumping crypto than Kim. Or @CNBC paid millions for ads by crypto companies, then pumping #Bitcoin non-stop while providing industry pumpers with airtime?

— Peter Schiff (@PeterSchiff) October 3, 2022

Saylor responded, saying Bitcoin isn’t a security but a commodity and its promotion would be “similar to promoting steel…or granite” and the coin’s open protocol offers “utilitarian beliefs similar to roads.”

Crypto-personality and author Layah Heilpern shared she believed “the SEC has bigger issues closer to home it should probably focus on…” likely inferring the widely held belief in the community that certain U.S. politicians have inside traded.

The SEC will go after Kim Kardashian for shilling a crypto but not Nancy Pelosi for insider trading her way to a hundred million dollars https://t.co/i0bZKjaxjJ

— Dr. Parik Patel, BA, CFA, ACCA Esq. (@ParikPatelCFA) October 3, 2022

Pseudonymous developer 0xBender noted a contrast between the SEC’s heavy-handed treatment of crypto promotions from celebrities, while crypto-centric influencers “have been out here shilling you garbage for 0.2 ETH a tweet.”

The SEC is charging Kim Kardashian with unlawfully promoting a crypto security while influencers have been out here shilling you garbage for 0.2 ETH a tweet

— bender (@0xBender) October 3, 2022

Others such as former federal prosecutor Renato Mariotti said influencers thinking of endorsing cryptocurrencies should “take note” as the regulator is showing it will “aggressively pursue enforcement actions,” and those who promote crypto without considering the laws will “need to find a good lawyer.”

Kim Kardashian presented a very tempting target for the SEC.

Because of this case, millions of people who didn’t know much about the SEC now know about it.

As an aspiring lawyer, she had every incentive to cooperate. Other celebrity crypto endorsers should take note. https://t.co/3mvMNQOxvg

— Renato Mariotti (@renato_mariotti) October 3, 2022

Meanwhile, Ethereum educator and investor Anthony Sassano told his followers he believes the SEC targeted Kardashian because it creates the illusion the regulator is “doing something” about crypto scams and suggested it should’ve targeted the creators of EMAX instead.

They went after Kim Kardashian because she makes a good headline and it shows the public that the SEC is “doing something” about crypto scams

In reality, the fine she paid is dust to her, the creators of Ethereum Max haven’t been fined (yet?), and the victims are all still rekt

— sassal.eth (@sassal0x) October 3, 2022

Still, some saw the lighter side of investing in a tumultuous and highly speculative crypto token, with journalist Tyler Conway saying the star “got the full crypto experience” by losing more money than she’d been paid.

Self-described hacker and tech content creator Marcus Hutchins said Kardashian “would have gotten better returns” in EthereumMax as it’s down 97% since her post, compared to the -80% the promotion returned for her.

Kim Kardashian got paid $250k to promote Ethereum Max then lost $1.3m of that to an SEC fine. Would have gotten better returns just investing in Ethereum MAX, which is down 97% since her post.

— Marcus Hutchins (@MalwareTechBlog) October 3, 2022

The SEC is bullying Kim Kardashian, and it could chill the influencer economy

The feds should have tried to work with Kardashian to establish more transparent norms for influencers rather than slapping her with a $1.26 million fine for promoting EthereumMax.

The Securities and Exchange Commission announced on Oct. 3 that Kim Kardashian settled an allegation that she promoted “a crypto asset security offered and sold by EthereumMax without disclosing the payment [of $250,000] she received for the promotion.” While she cooperated and closed the case with $1.26 million in penalties, the charge highlights the liability that “influencers” increasingly face as a result of an activist SEC that has failed to establish regulatory clarity.

Pushing influencers to leave the United States

Addressing the agency’s action against Kardashian, Jacob Robinson, a legal scholar and host of the Law and Code podcast, noted that “The net-positive is [that] this probably leads to less shilling by celebs who have zero knowledge of the underlying project & are just receiving a big payday.”

Thanks to the proliferation of social media platforms, content creators and influencers have emerged and are working with brands to promote products and services. Sadly, the “creator economy” has also had downsides. In particular, influencers have often sold products and services that may not serve everyone’s interests, accepting payment from companies in exchange for their support.

While that privilege can be, and often is, abused, influencers are not doing anything systematically different than what corporations do when they take out paid advertisements in the media and on television, or even when board members join and take on a retainer to share their network and promote an organization. When a corporation takes out an ad in a large paper or magazine, such as The New York Times or Vogue, are the media outlets equally liable for not disclosing their acceptance of payment to all the readers? Clearly not, and the media’s business model would quickly crumble if they were unable to accept such paid advertising opportunities.

So, why are influencers treated so differently, and why can they personally be liable and targeted by a federal agency? Consider the car market: If a used car salesperson sells a customer a car that is later recalled or turns out to have some other flaw, are they singled out by a regulatory agency? The car company might be — as we have seen with Volkswagen, Toyota and others over the years — but the individual employee is generally free from such liability.

The SEC’s action against Kardashian risks alienating and stifling other members of the creator economy. While she can “afford” the $1.26 million fine — a little more than $1 million in excess of what she earned — many content creators are not making six-figure-plus salaries each year. The action also threatens to push many content creators outside the United States to countries that have more favorable policies.

Defining securities and liability

The SEC has adhered to an old Supreme Court ruling from 1946, SEC v. W. J. Howey Co., which led to what is now known as the “Howey test.” The Howey test defines an “investment contract” if the following conditions are met: 1) an investment of money 2) in a common enterprise 3) with the expectation of profit 4) derived from the efforts of others.

The test, however, was introduced in an entirely different economy than the one we have today. To be sure, many projects that involve the release of fungible tokens easily fall into the category of a security regardless of how liberal one wants to be with the definition. But other projects, especially nonfungible token projects, are in a much grayer area. Many NFT projects do not convey any expectation of profit to their potential holders but rather emphasize perks and exclusive access to events, classes or deals.

*A leaked copy of rates to get a promotion from Ben Armstrong, known as “Bitboy.”*

Admittedly, the SEC’s recent regulatory action went after Kardashian for her promotion of EthereumMax (EMAX) without disclosing that she had received payment rather than for EthereumMax being a security, as it was arguably an easier, more clear-cut case. But the case highlights a major challenge influencers will inevitably face in the Web3 economy if they have to worry about regulatory risk against themselves for promoting different projects, even if they just make a social media post.

Other countries are taking a vastly different approach toward Web3. For example, the United Arab Emirates has gone on record saying that it wants its economic success to be measured according to its “gross metaverse product” rather than the conventional gross domestic product that has become the norm for cross-country comparisons in productivity. The UAE, among others (such as Singapore), has become a hub for entrepreneurs and startups.

What happened to Kardashian could happen to others

If the regulatory concern is that influencers are abusing their authority by promoting products and services without disclosing receipt of compensation, then Web3 lends itself perfectly through greater transparency and accountability on the blockchain. In particular, influencers could have their digital wallets open for viewing so that their remuneration is open and their own purchases visible. (There is still a need for privacy-preserving blockchains since everything in everyone’s lives should not be on full display, but with the blockchain, there is much more potential for transparency and accountability where it matters.)

Web3 also allows content creators to receive payment for their creative content without having to rely as much on centralized entities for brand deals and partnerships. NFTs, for instance, allow artists to transform audiences into communities that engage with their content directly.

What happened to Kardashian could have happened to several influencers. While regulatory actions without penalties admittedly do not have much bite — and often, such penalties are needed to signal that an agency is serious — an alternative strategy would have been to reach out to Kardashian and galvanize support among a body of influencers to establish stronger, more transparent norms around the promotions of products and services, particularly crypto projects that could be classified as securities. Such an approach is more collaborative and would contribute to establishing shared norms and best practices among crypto enthusiasts.

Christos Makridis is an entrepreneur, economist and professor. He serves as chief operating officer and chief technology officer at Living Opera, a Web3 multimedia startup, and holds academic appointments at Columbia Business School and Stanford University. Christos also holds doctorates in economics and management science from Stanford University.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph. The author was not compensated by any of the projects cited in this piece.

Kim Kardashian pays SEC $1.26 million to settle EthereumMax charge

The United States SEC charged the American celebrity and influencer for promoting a cryptocurrency asset security without disclosing payments received to her followers.

American socialite Kim Kardashian will pay $1.26 million in penalties for her involvement in the promotion of a cryptocurrency scheme called EthereumMax (EMAX).

The United States Securities and Exchange Commission (SEC) announced the charges against Kardashian on Oct. 3 for “touting on social media a crypto asset security offered and sold by EthereumMax” without disclosing the payment received for her promotional involvement.

Kardashian has agreed to settle the charges and pay $1.26 million in penalties, disgorgement and interest and is set to cooperate with further investigations by the SEC into the EthereumMax project.

The announcement noted that Kardashian failed to disclose a $250,000 payment she had received to publish a post on her Instagram profile promoting EMAX tokens with a link to the project’s website.

The order by the SEC finds that Kardashian violated the anti-touting provision of federal securities laws. This has been the case with other prominent cryptocurrency securities violations involving the SEC in the past.

Kardashian neither admitted or denied the SEC’s findings but agreed to settle the charges. This was broken down into $260,000 in disgorgement as well as a $1 million penalty. Kardashian has also agreed to not promote any cryptocurrency assets until 2025.

Today @SECGov, we charged Kim Kardashian for unlawfully touting a crypto security.

This case is a reminder that, when celebrities / influencers endorse investment opps, including crypto asset securities, it doesn’t mean those investment products are right for all investors.

— Gary Gensler (@GaryGensler) October 3, 2022

SEC chairman Gary Gensler also used the order to advise the general public to do their due diligence when investing in cryptocurrency assets, while reminding celebrities and influencers of their obligation to disclose payments relating to promotions of securities.

“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. We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals.”

Kardashian’s legal team also filed a motion to set aside a class-action complaint aimed at the businesswoman and other American celebrities in August 2022. Kardashian and a handful of other prominent American social media influencers were served with a class-action complaint in January 2022 over claims they misled investors through the social media promotion EthereumMax.

Kardashian posted Instagram stories promoting the project in June 2021, with the likes of boxing great Floyd Mayweather also embroiled in the lawsuit after promoting the Ethereum-based token in the build-up to a celebrity boxing bout against YouTuber Logan Paul during the same period.

Fans could purchase pay-per-view tickets with the token, which surged after the promotion by Kardashian and other influencers. The value of EthereumMax dropped significantly afterward, leaving many out of pocket.

The original court filing that listed Kardashian, Mayweather and eight others claimed that company executives had collaborated with celebrity promoters to make misleading statements about the token and their control of the majority of tokens. Steve Gentile and Giovanni Perone were listed as co-founders of the project.