[TL;DR]

• The SEC charged Kim Kardashian for advertising EMAX, a cryptocurrency asset security marketed and sold by EthereumMax.

• The SEC's order finds that Kardashian failed to disclose that she was paid $250,000 to promote EMAX tokens on her Instagram account.

• EthereumMax was just launched a month before Kardashian’s promotion in 2021, had not yet undergone extensive testing, and was still highly speculative for investment decisions.

• Kim Kardashian agreed to pay more than $1 million to settle SEC charges and not to advertise any crypto assets for three years.

• SEC Chair Gensler published a video on Twitter warning investors not to make investment choices based majorly on just the recommendations of influencers.

• Kristin Smith poured out his mind while criticizing the charges SEC gave for EMAX; "We didn't believe EthereumMax was a security, and just because Gary Gensler believes that doesn't mean the courts would agree," she added.

• The action SEC took against this case shows the commission's readiness, willingness, and ability to legally face celebrities who promote crypto projects on their walls.

SEC Takes Action Against Kim Kardashian for Unlawful Touting.

On Monday, October 3, 2022, the Securities and Exchange Commission (SEC) charged Kim Kardashian for advertising EMAX, a cryptocurrency asset security marketed and sold by EthereumMax, on social media without reporting the cash she received in exchange for the promotion.

The action SEC took against this case shows that the commission is ready and willing to legally face celebrities who promote crypto projects on their walls. However, Kardashian agreed to settle with the Securities and Exchange Commission over her violation of the law.

Announcing the settlement via a tweet, the SEC head, Gary Gensler, included a video to caution both investors and celebrities against celebrity promotion of cryptocurrency investments.

The Charges Against Kim Kardashian

The charges against Kim Kardashian stem from a post she made on Instagram in June 2021 asking her 250 million followers, "Are you into Cryptocurrency?? This is not financial advice but posting what my friends just told me about the Ethereum Max token! Just a few minutes ago, Ethereum Max burned 400 trillion tokens-almost 50% of their admin wallet sent back to the entire EMAX community."

The SEC's order finds that Kardashian failed to disclose that she was paid $250,000 to publish this post about EMAX tokens on her Instagram account. Her post included the hashtag "#ad" and a link to "swipe up to join the E-Max group," which directed users to the EthereumMax website with instructions on buying the tokens.

Although Kardashian clearly stated that the post was an "ad," her actions were determined to have violated federal securities law because she failed to disclose the $250,000 payment she got in exchange for the endorsement.

Source: Twitter

According to Section 17(b) of the Securities Act of 1933, it is illegal for anyone to promote a stock without disclosing the type and value of any consideration they have received—directly or indirectly in the past, present, or future—from an issuer, underwriter, or dealer.

"The federal securities rules are clear that any individual who promotes a cryptocurrency asset security must disclose the kind, source, and amount of payment they received in exchange for the promotion," Gurbir S. Grewal, Director of the SEC's Division of Enforcement, added.

According to the SEC, the rule was created to protect investors due to the crypto industry's high susceptibility rate.

In the past, many influencers have advertised tokens to their followers, only for those tokens to fall in value shortly after, leaving investors, often their fans, with empty wallets.

The SEC took action against Kardashian out of concern for the general public. Moreover, EthereumMax was barely tested, had only just been introduced a month before her post in 2021, and is not yet well-known.

Kardashian Accepts to Settle Charges

Without admitting or disputing the SEC's findings, Kardashian, whose estimated net worth is $1.8 billion, agreed to pay $1.26 million to resolve the charges.

This sum included an estimated $260,000 in disgorgement, which represented her promotional payment, as well as prejudgment interest and a $1,000,000 penalty.

The SEC added that she will also comply with an ongoing investigation and has agreed to refrain from promoting crypto securities for three years.

In a statement, a lawyer for Kardashian expressed her satisfaction at the outcome of the resolved case.

The statement read, "Kardashian fully complied with the SEC from the beginning, and she stays committed to doing whatever she can to help the SEC in this case. She wanted to get this matter behind her to avoid a long-lasting 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."

Gensler warns Investors and Celebrities.

SEC Chair Gensler published a video on Twitter warning investors not to make investment choices based majorly on the recommendations of a celebrity or influencer.

He said, "This case serves as a reminder that when celebrities endorse investment schemes, including crypto-asset securities, it doesn't imply that those investment products are suitable for all investors."

Source: Twitter

That tweet could be a warning to the celebrities themselves as well. Gensler has been open about his ambition to pursue the ill-defined and wildly unpredictable world of cryptocurrency investments.

The Community reacts to SEC charges for EMAX.

While some community members commended SEC for prompt action, others, including Kristin Smith, the executive director of Blockchain Association, spoke their minds to critique SEC’s action.

The opposing Community said that by imposing these charges for EMAX, the SEC was unilaterally seeking to shape policy. "It's definitely a frustrating thing," Kristin Smith pointed out.

"We didn't believe EthereumMax was a security, and just because Gary Gensler believes that doesn't mean the courts would agree," she added.

Smith asserted that she thought the legislation was necessary to clarify the distinction and whether crypto assets should be categorized as securities or commodities. She urged congress to act immediately while emphasizing that the SEC’s trend toward control was not a good approach to establishing policy.

On the other hand, Lartease Tiffith, executive vice president for public policy at the IAB, commended the action by SEC, saying, "They wanted to make her an example, so others will hopefully respect the rules."

Conclusion

EMAX peaked at $0.00000092 in May 2021 but has since dropped by 99%. The token fell by as much as 4% on Monday morning on the news of Kardashian's settlement, according to CoinMarketCap.

While Kardashian is among the first high-profile celebrities to get charged for promoting crypto assets to their fans, many other influencers have engaged in the same unlawful practice, misleading investors into making financial decisions on EMAX. However, the SEC noted that its investigation into EthereumMax "is continuing" and will be further led by Kerri Palen, Lisa Knoop, and Victor Suthammanont of the New York Regional Office, as well as Jon A. Daniels, Alison R. Levine, and Pamela Sawhney of the Enforcement Division's Crypto Assets and Cyber Unit.

Author: M. Olatunji, Gate.io Researcher

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