“Are you guys into crypto????”, Kim Kardashian asked her 331 million Instagram followers last June. The post in question may have seemed harmless to her fans among a sea of social media posts promoting endless digital currencies. But it stood out to the US federal government.
“This is not financial advice but sharing what my friends just told me about the ethereum max token,” posted the reality TV star and trainee lawyer. Ms Kardashian was promoting EMAX tokens, a crypto currency offered by EthereumMax. But there was a problem: the $250,000 (£222,000) paid promotion included the hashtag #ad but failed to disclose just how much money Ms Kardashian had been given to share it. Now she is paying the price, literally.
Without admitting or denying the findings from the US Securities and Exchange Commission (SEC), Ms Kardashian agreed to pay $1.26 million (£1.09m) and not to promote crypto for at least the next three years.
Kim Kardashian is one of the world’s biggest influencers, but she is just another celebrity that has found themselves on the SEC’s hit list over crypto promotion. First came boxer Floyd Mayweather Jr who was fined over $600,000 (£533,000) in 2018. Then DJ Khaled, who was fined almost $200,000 (£177,000). More recently in 2020, actor Steven Segal was fined $314,000 (£279,000).
“All of these celebrities had issues with the finance regulator for the same reason,” says Kirill Bezverhi, CEO of FINPR, a crypto PR agency. “The only difference is that Kim might be the most influential and popular in this list, that’s why this story brought so much attention.” Ironically, in the hours after the news broke that Ms Kardashian would be paying out to the SEC, the price of EthereumMax rose by about 87 per cent, according to CoinMarketCap.
She may not be the first to fall foul of the SEC in this way, but Ms Kardashian’s giant fine bears significance for the celebrity world – it is a sign of the times. “The US government lacks the resources to investigate and prosecute each and every promoter who violates federal securities laws,” says former SEC adviser, Ron Geffner. But because of this resourcing, Geffner warns that high-profile promoters, especially those with massive net worth, will be at greater risk of being targeted in an attempt to regulate the problem.
Bezverhi agrees: “As a regulator you can try to shut down all suspicious crypto projects, but there are more than 13,000 coins on the market. It’s much easier to focus on top celebrities and send them a signal to think twice when they are offered to promote crypto, rather than to deal and investigate each coin one by one.”
The prevalence of scams within the crypto currency world also makes it a target for the authorities, says Bezverhi. “This move by the SEC is important because it might be the sign of current SEC policy to mitigate the amount of crypto scams.” There is no suggestion that Ms Kardashian’s post was advertising a scam, but scams and fraudulent schemes are a risk of investing in the cryptomarket.
This is worth noting as many young people take much of their financial advice from social media: last year, Gen Z crypto investors said that they were five times more likely to get advice from social media than their older counterparts, an indication of the influence celebrities wield when dishing out advice.
This isn’t the first toe Ms Kardashian has dipped in financial waters. In September, she announced her latest venture: a private equity firm, SKKY Partners. In true Kardashian style, there was a promotional photoshoot to go with it, featuring Ms Kardashian’s new partner, industry veteran Jay Sammons. Until this summer, Sammons ran consumer investing at Carlyle, one of the most respected private equity firms in the world, an industry insider tells the i.
SKKY Partners will invest in all the sectors that the Kardashian’s reality TV stardom already shines on: lifestyle, media and entertainment businesses. Of course, Kris Jenner has also been made a partner.
In March, Serena Williams also announced her own firm, Serena Ventures, which has invested in FinTech and raised $111 million (£98m) within its first month. Then there’s actor Ashton Kutcher, who set up venture capital firm A-Grade Investments in 2010, which mainly invests in tech startups.
“We believe even more celebrities are going to follow this route,” predicts Harry Heartfield, a senior partner at private equity firm Edition Capital. “Celebrities have started to realise the power they have over consumer behaviour and spending.”
With this in mind, celebrities will need to keep a close eye on where they tread to avoid overstepping the mark. “This [Kardashian] 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.”
For now, though, it’s unlikely that we are about to see a spike in celebrities facing legal trials. “I don’t think we’ll see some fast rise in the amount of cases,” says Bezverhi. “The crypto market is on the slide this year.”
But still, for A-listers and Hollywood actors, the message remains loud and clear. Where business and financial advice is concerned, step cautiously. You have been warned.
Original posted at inews.co.uk