Kim Kardashian is famous for being famous. The reality star abused that fame when she promoted a cryptocurrency called EthereumMax to her more than 200 million followers on Instagram in May 2021, according to federal regulators.
The US Securities and Exchange Commission charged (pdf) Kardashian on Oct. 3 for failing to disclose that she was paid $250,000 for the Instagram post.
“Are you guys into crypto????” she wrote. “This is not financial advice but sharing what my friends just told me about the Ethereum Max token!” The post linked out to EthereumMax’s website where users could buy the coins.
Celebrities have been a key part of crypto promotion in recent years. Matt Damon does commercials for the the exchange Crypto.com, Larry David and Tom Brady promote FTX, and Reese Witherspoon’s production company partnered with the World of Women nonfungible token (NFT) collection. But Kardashian’s promotion stands out because she endorsed an almost completely unknown cryptocurrency and her millions of followers might’ve invested based on Kardashian’s association with it alone, regulators allege.
EthereumMax was a bust and anyone who invested in it likely lost their money. The coin, which was effectively worthless before Kardashian posted about it on Instagram, quickly increased in value by 82% to $0.00000051 per coin. It only took days for the price to plummet.
EthereumMax has since lost 99.99% of its peak value. Kardashian, along with boxer Floyd Mayweather and other celebrity promoters, is facing a class-action lawsuit over EthereumMax.
False advertising complaints typically fall under the authority of the Federal Trade Commission (FTC), but Kardashian’s case fell under the SEC’s domain because the agency determined EthereumMax was operating as an illegal security. Under the Securities Act, any paid promoter of a security needs to disclose not only that they were paid and by whom, but how much. Kardashian wrote “#ad” at the bottom of her Instagram post, but that wasn’t enough to appease regulators.
“The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source, and amount of compensation they received in exchange for the promotion,” said SEC enforcement chief Gurbir Grewal in a statement. “Investors are entitled to know whether the publicity of a security is unbiased, and Ms. Kardashian failed to disclose this information.”
In settling the charges, Kardashian agreed to pay a $1.26 million fine, cooperate with investigators, and not promote crypto securities for three years. Kardashian’s lawyer, Patrick Gibbs, told The New York Times that she is “pleased to have resolved this matter with the SEC.”
The charges against Kardashian are another sign that the SEC, under chairman Gary Gensler, wants to be the main agency to regulate the crypto industry. Gensler recently said in a speech that he believes the “vast majority” of cryptocurrencies are unregistered securities that will need to comply with the SEC’s regulations.