Keeping Up with Disclosures: SEC Punishes Kim Kardashian for Crypto Promotion

On Monday the U.S. Securities and Exchange Commission issued a cease-and-desist order to Kim Kardashian for failing to disclose that she received $250,000 to promote EthereumMax’s digital tokens, “EMAX tokens,” on social media.

The SEC considers the EMAX token to be an investment contract, a type of security under the SEC’s jurisdiction. EMAX tokens are available for public trading on cryptocurrency exchanges, and the SEC found that purchasers would have had a reasonable expectation of profits from their investment in EMAX tokens as a result of the efforts of the company behind the token.

Kardashian’s social media post included an introductory video stating she had a “big announcement,” followed by a post that read:

• Are you guys into crypto???
• This is not financial advice but sharing what my friends just told me about the Ethereum Max token!
• A few minutes ago Ethereum Max burned 400 trillion tokens—literally 50% of their admin wallet, giving back to the entire E-Max Community
• #EMAX #DISRUPTHISTORY #ETHEREUMMAX #WTFEMAX #GIOPEMAX @ETHEREUMMAX #AD
• Swipe up to join the E-Max Community

Section 17(b) of the Securities Actpreviously issued a statement clarifying that “[a]ny 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.”

makes it unlawful for anyone to publish an advertisement describing a security “for a consideration . . . without fully disclosing the receipt, whether past or prospective, of such consideration and the amount of.” 15 U.S.C. § 77q(b). Furthermore, the SEC 

In addition to a three-year ban on promoting crypto asset securities, the order requires Kardashian to disgorge the $250,000 she received for the promotion, prejudgment interest, and a civil penalty of $1,000,000. The SEC order doesn’t resolve all of Kardashian’s legal troubles in connection with her promotion of the EMAX tokens. In January, a class action lawsuit was filed against Kardashian and a few other celebrities for their role in promoting the EMAX tokens, which sharply lost their value shortly after the celebrities’ promotional efforts.

As the FTC moves forward with updating its Endorsement and Testimonials Guides, the Kardashian case serves as a reminder to endorsers and influencers that, regardless of the product being promoted, regulators are keeping an eye on their disclosures—especially if they have 331 million followers.

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