In January of this year, we blogged about a class action against Kim Kardashian relating to her promotion on Instagram of the cryptocurrency, EMAX. Unfortunately for the starlet, the plot now thickens, with the Securities and Exchange Commission (SEC) announcing yesterday that it had charged Kardashian with violating the anti-touting provision of the federal securities laws over this same campaign.
As a reminder, Kardashian’s EMAX Instagram post included a material connection disclosure (#AD) and contained a link to a website that provided instructions for potential investors to purchase EMAX tokens. Yet Kardashian did not disclose that the company behind the EMAX token, EthereumMax, paid her $250,000 for her post.
In its order, the SEC stated that, in failing to make such disclosures, Kardashian violated section 17(b) of the Securities Act, which makes it unlawful for any person to publish, give publicity to, or circulate any advertisement, among other communications, describing a security for a consideration received or to be received, without fully disclosing the receipt and amount of consideration.
The SEC’s announcement states that Kardashian has agreed to pay a $1.26 million settlement, which includes approximately $260,000 in disgorgement and a $1,000,000 penalty. She also agreed not to promote any crypto asset securities for three years. In response to Kardashian’s recent mishap, SEC Chair Gensler also published a video warning investors to use caution when making investment decisions, especially when celebrity or influencer recommendations are involved.
While this move by the SEC is certainly important from a social media disclosure perspective, perhaps the more notable takeaway is the SEC’s forgone conclusion that the EMAX crypto asset constitutes a security. It seems clear that the Commission has not yet abandoned its contentious strategy of “regulation by enforcement.”
"Ms. Kardashian’s case also serves as 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." - SEC Chair, Gary Gensler