Celebrities are being urged not to ‘dabble in the dark world of crypto to make a quick buck’ after the US financial regulator fined Kim Kardashian for publishing a promotional social media post for crypto asset security.
Kim Kardashian has agreed to pay a $1.26million (£1.12million) fine for advertising EthereumMax on her Instagram page. According to the US Securities and Exchange Commission (SEC), the reality TV star had received $250,000 for advertising the cryptocurrency, without disclosing she had been paid to do so.
The SEC’s order finds that Kardashian failed to disclose that she was paid to publish a post on her Instagram account about EMAX tokens, the crypto asset security offered by EthereumMax. Kardashian’s post contained a link to the EthereumMax website, which provided instructions for potential investors to purchase EMAX tokens.
Under SEC regulations, any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.
SEC chair Gary Gensler said the 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 said: “We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals. 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.”
The SEC’s order finds that Kardashian violated the anti-touting provision of the federal securities laws. Without admitting or denying the SEC’s findings, Kardashian agreed to pay the fine, including approximately $260,000 in disgorgement, which represents her promotional payment, plus prejudgment interest, and a $1,000,000 penalty. Kardashian also agreed to not promote any crypto asset securities for three years.
In a speech last year, Charles Randell, the former chair of the UK’s Financial Conduct Authority (FCA), suggested that Kardashian’s post “may have been the financial promotion with the single biggest audience reach in history”.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says the reprimand is a ‘stark celebrity warning’.
“The $1.26million pound fine levied on Kim Kardashian for promoting Ethereum Max is a stark warning to other celebrities not to dabble in the dark world of crypto to make a quick buck. This is a severe dressing down both financially and in terms of reputation for the Queen of reality TV who has agreed not to promote any crypto asset securities for three years.
“Regulators are clearly horrified at the damage superstar celebrities can do to the bank balances of vulnerable consumers, who are influenced by almost every move they make. The delusions of quick riches can spread far too rapidly on social media with speculation amplified by reposts by millions of followers.
“The FCA has repeatedly warned that investing in crypto currencies is extremely high risk and that speculators risk losing all their money if they indulge in trading on platforms which are largely unregulated. It’s worried that too many financially vulnerable people are being lured into ‘get rich quick’ schemes, with 14 per cent getting into debt during the pandemic to speculate in crypto assets.”
According to Streeter, Ethereum Max has ‘plummeted like a stone’ from an all-time high of $5.80 to be ‘almost worthless’ given that it’s now trading at $0.000000004312.