Celebrities Abuse Social Following to Boost Support for a Month-Old Crypto Currency
In May 2021, Kim Kardashian, Floyd Mayweather Jr. and celebrities alike used social media to promote the month-old cryptocurrency Ethereum Max.
Ms Kardashian took to her Instagram, imploring her 278 million followers to join “the Ethereum Max Community,” and Mayweather in a tweet targeted towards his conflict with ESPN news stated, “I got @ethereum_max I made more money with this crypto in the past month then I did with y’all in a year.”
Charles Randell, the head of the U.K’s Financial Conduct Authority addressed these acts of social media endorsement saying the promotion of EthereumMax may “have been the financial promotion with the single biggest audience reach in history.” According to a Morning Consult survey, ⅕ Americans saw Ms Kardashian’s post. Randell proceeded to criticise Kardashian stating that she failed to tell her followers that EthereumMax was a “month-old, speculative digital token.”
Kim Kardashian's post “ARE YOU 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,” violated Section 17(b) of the Securities Act of 1933. Despite using #ad, Kardashian’s language was deceitful in nature, implying her friends had informed her of the coin rather than acknowledging the $250,000 USD payment she had earned from posting about the token.
On January 7th 2022 Kim Kardashian and Floyd Mayweather Jr. were named co-defendants with the creators of Ethereum Max in a class action lawsuit in the United States District Court for the Central District of California when the plaintiffs sued them for allegedly helping to scam millions off of investors.
The plaintiffs accused Kardashian and other celebrities of running a pump-and-dump scheme that saw Ethereum Max value increase by more than 1,300% before plummeting to an all-time low just a month after the price spike, losing an estimated 97% of its valuation.
The high-profile nature of this case sparked an investigation by the U.S Securities and Exchange Commission (SEC.) Gurbir S. Grewal, the Director of the SEC’s Division of Enforcement stated “Investors are entitled to know whether the publicity of a security is unbiased, and Ms Kardashain failed to disclose this information.” As Karshadian was in direct violation of federal securities law, the SEC forbade her from promoting any crypto asset securities for three years. A press release statement from the SEC on 3 October 2022 outlined the settlement agreement with Kardashian.
$1.26 million USD consisting of $260,000 in disgorgement (representative of her promotional payment, plus prejudgment interest) and a $1,000,000 penalty.
Following the conclusion of this case, the SEC published a Youtube video urging investors and the public to think twice before taking investment advice from celebrities and other influencers. The Chair of the SEC, Gary Gensler conclude his statement by saying let Ms Kardashian’s case serve “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,"
As the SEC continues to become more stringent in the cryptocurrency space could this be a sign that further regulations will soon be introduced? Do you believe that the settlement was sufficient? In the following months, we can expect to hear more regarding Mayweather and the other celebrities' court proceedings.
Section 17(b) of the Securities Act of 1933, “makes it unlawful for any person to tout a stock without disclosing the nature and substance of any consideration, whether present or future, direct or indirect, received from an issuer, underwriter or dealer.”
Co-defendants, any of two or more individuals, companies, organisations or institutions, jointly sued in the same civil action formally accused of committing the same crime.
Plaintiffs, a person or company that makes a legal complaint about someone/something else in a court of law.
Class Action Lawsuit, a procedural device that permits one or more plaintiffs to file and prosecute a lawsuit on behalf of a larger group
Pump-and-dump, a manipulative scheme that attempts to boost the price of a stock or security through fake recommendations. The Lawsuit alleges that Ethereum Max used celebrity endorsement to inflate the coin’s value before selling the shares for a profit. Kardashian is accused of offloading her holdings before the massive price drop and ultimately earning significant profits off of the financial loss of others.