Why Kim Kardashian has been fined $1 million over a crypto post

Reality TV star and businesswoman Kim Kardashian has been fined $1 million for promoting a crypto security on Instagram without fully disclosing that she was paid to do so. Kardashian will also have to return the $250,000, with interest, she received to put out a post about EthereumMax tokens. In addition, she cannot promote any crypto asset securities for three years.

What is the Kim Kardashian case and what does it say about the foggy world of crypto securities? We explain.

With millions of followers, Kardashian has a massive reach on Instagram. As of October 4, her follower count is 331 million. When she put out the crypto post in June last year, she had 220 million followers.

“Are you guys into crypto????” she had posted, along with a link to the EthereumMax website, which had instructions for investors to purchase EMAX tokens. The post further said, “Sharing what my friends just told me about the EthereumMax token!”, and included the hashtag ‘#ad’ to show it was a paid advertisement.

However, the US Securities and Exchange Commission (SEC) fined her for violating the law that requires celebrities to disclose to the public “the nature, source, and amount of compensation” they receive to promote investing in securities, a press release by the SEC on October 3 said.

“This 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,” said SEC Chair Gary Gensler. “We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals.”

Kardashian agreed to pay the fine without admitting or denying the SEC’s findings. Her lawyer told the BBC that the reality TV star “wanted to get this matter behind her to avoid a protracted dispute.”

“The agreement she reached with the SEC allows her to do that so that she can move forward with her many different business pursuits,” the lawyer added.

Since the crypto world is little regulated and less understood, its promotion by celebrities poses the risk of investors getting into schemes they don’t fully comprehend.

In the US, the SEC says about celebrity endorsements: “Persons making these endorsements may also be liable for potential violations of the anti-fraud provisions of the federal securities laws, for participating in an unregistered offer and sale of securities, and for acting as unregistered brokers.”

In India, in February, the Advertising Standards Council of India framed guidelines to promote virtual digital assets (VDA). These state that all ads for VDA products and exchanges must carry, in a prominent and unmissable manner, the disclaimer that “Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.”

Kardashian, boxing star Floyd Mayweather Jr., basketball player Paul Pierce, along with EthereumMax have also been sued in a Los Angeles federal court for promoting the crypto tokens.

According to the lawsuit, promotions by celebrities caused the currency to increase in value to over 1,300 per cent more than its initial price, before falling to “an all-time low” around a month after Kardashian’s post, a BBC report said. The case was filed in January by a New York resident who bought EMAX tokens and lost money.

In December last year, the UK advertising watchdog banned two promotions for “fan tokens” from the Arsenal Football Club – one on its official website and one on its Facebook page – because they “misled fans over the risks of investing in cryptocurrencies”.