SEC DROPS THE HAMMER ON KIM KARDASHIAN’S “PUMP AND DUMP” INSTAGRAM PROMOTION OF CRYPTOCURRENCY TOKEN
On October 3, 2022, the Securities and Exchange Commission announced charges against Kim Kardashian for violation of the anti-touting provision of the Securities Act, Section 17(b), specifically for “touting on social media a crypto asset security offered and sold by EthereumMax without disclosing the payment she received for the promotion.” The SEC found that Kardashian failed to disclose that she was paid $250,000 to publish a post on her Instagram account about EMAX tokens, the crypto asset security being offered by EthereumMax. For the charges, Kim Kardashian and the SEC have agreed to settle in exchange for Kardashian agreeing to pay $1.26 million in penalties, disgorgement, and interest, and cooperate with the SEC Commission’s ongoing investigation.
On June 13, 2021, Kardashian made an Instagram post stating the following: “Are you guys into crypto? This is not financial advice but sharing what my friends told me about the ethereum max token!” The post further included different hashtags, including #ad, #emax and #disrupthistory, among others.
After Kim Kardashian’s post, the EMAX token price increased in value to over 1,300% from its initial price. However, the price of EMAX tokens have plummeted in the 16 months since her post, down over 95% from its record high. That means that if you invested $100 after Kardashian promoted the token, your investment would be worth about $5 today.
The move to bring charges against Kim Kardashian was made to provide a stern warning to other potential influencers who may promote similar security ventures in the future, to ensure their posts are not misconstrued as financial advice. As described by SEC Chair Gary Gensler, Kim Kardashian’s June 2021 Instagram post was not a generic product advertisement. Rather, her post dealt with promoting a “crypto asset security” which implicates U.S. securities laws, and thus the emphasis is on protecting the investor.
As made clear by SEC Chair Gary Gensler, when promoting a security, simply providing the hashtag, “#ad”, at the bottom of a post or stating “not financial advice” is not enough to meet such SEC disclosure obligations. Rather, “[t]he 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,” as said in a prepared statement by Gurbir Grewal, director of the SEC’s division of enforcement.
In a further attempt to make the public more aware, Gensler, after the SEC’s announcement to bring charges against Kardashian, made a tweet which included a video where he stated that “any celebrity or influencer’s incentives aren’t necessarily aligned with yours ” and that the investing public shouldn’t confuse the skills of celebrities “with the very different skills needed to offer appropriate investment advice.”
Read the SEC’s settlement order here.
ARE SOCIAL MEDIA INFLUENCER PROMOTIONS DEAD?
No, most certainly not; however, business owners and promoters need to be conscious of the laws surrounding the areas of what specifically is to be promoted. For example, the laws and best practices surrounding promoting products are quite different than promoting a security, as seen by this most recent SEC action against Kim Kardashian. Generally, all businesses should err on the side of caution by utilizing disclaimers and ensuring not to mislead consumers.
Written by Josh Slovin and Kennington Groff
Josh Slovin is a business transactional attorney focusing on providing legal counsel to his clients on a variety of corporate and transactional matters, including initial formation, corporate governance, mergers and acquisitions and capital raising.
Kennington Groff is an intellectual property, entertainment and business attorney. Kennington’s practice focuses on brand strategy, trademark and copyright registration, maintenance and enforcement, general counsel assistance and the entertainment industry..