Last June Kim Kardashian shared a post on social media promoting a little-known cryptocurrency token called EthereumMax.
“Are you guys into crypto????” she wrote on Instagram, where she has more than 200 million followers. “This is not financial advice but sharing what my friends just told me about the Ethereum Max token!”
Seven months later, EthereumMax has lost about 97% of its value, and celebrities are in legal hot water for promoting the speculative currency. Kardashian is one of several public figures being sued for allegedly misleading investors about the token, along with boxer Floyd Mayweather and former professional basketball player Paul Pierce.
What the lawsuit alleges
A class-action lawsuit (pdf) filed on Jan. 7 in the US District Court for the Central District of California accuses several celebrities as well as EthereumMax’s co-founders of making “false or misleading statements to investors about EthereumMax through social media advertisements and other promotional activities.” Ryan Huegerich, who purchased the company’s EMAX tokens last year, filed the complaint on behalf of himself and other investors who bought the digital assets in May and June of 2021.
The complaint alleges misleading promotions and celebrity endorsements artificially increased interest and pricing of the digital tokens while they were available for public trading, “causing investors to purchase these losing investments at inflated prices.”
In addition to Kardashian’s Instagram endorsement, EthereumMax was hyped by former Boston Celtics player Pierce on Twitter, as well as Mayweather, who promoted the token at a boxing match with YouTube star Logan Paul last June. Spectators could pay to attend the event using the cryptocurrency, which caused EthereumMax’s trading volume to more than double in the days leading up to the match, the complaint alleges.
Celebrities face increased scrutiny for promoting crypto
The swift rise and fall of EMAX tokens’ value led some regulators to accuse Kardashian and other celebrities of engaging in a “pump and dump” scheme, meaning they hyped speculative digital assets while the share price was high before selling them off.
“There is no shortage of stories of people who have lost savings by being lured into the crypto bubble with delusions of quick riches, sometimes after listening to their favorite influencers, ready to betray their fans’ trust for a fee,” Charles Randell, the head of Britain’s Financial Conduct Authority, said in a speech criticizing Kardashian’s actions in September.
Celebrities from actor Matt Damon to TikTok star Charlie D’Amelio to football player Tom Brady continue to promote cryptocurrency in spite of the considerable risk investors take on by buying digital tokens such as EMAX. This is not the first time Mayweather has faced legal consequences for engaging in such promotions; the boxer reached a settlement with the US Securities and Exchange Commission in 2018 for failing to disclose payments he received for promoting investments in Initial Coin Offerings.
A representative for EthereumMax told the Wall Street Journal that Kardashian’s post “was simply intended to raise awareness of the project and its utility.”