Yesterday, as was widely reported, well-known celebrity and influencer Kim Kardashian settled an enforcement action brought by the Securities and Exchange Commission (SEC). The infraction had to do with an Instagram post for EthereumMAX, the issuer of the EMAX token. The post, which was tagged as an ad, was cited for its lack of disclosure as to how much Kardashian was paid to share the information on social media. And as the SEC believes all digital assets are securities, the Commission decided Kardashian has transgressed existing law.
Kardashian wisely decided to settle, paying a $1.26 million penalty that included the amount she was paid to promote EMAX, $250,000.
CI received several comments from lawyers active in the digital asset – blockchain sector, shared below.
Former SEC enforcement attorney, Philip Moustakis, who is currently counsel in the Government Enforcement & Internal Investigations and Blockchain & Cryptocurrency practice groups at law firm Seward & Kissel, commented:
“The SEC aims to bring enforcement actions that will have a programmatic impact on market conduct, meaning actions that will get widespread attention and influence market participants’ conduct going forward. Naturally, an action against Kim Kardashian is ideal for these purposes, not unlike the crypto-touting actions the SEC brought against Floyd Mayweather, Jr. and DJ Khaled a few years ago. In this respect, the SEC staff is hoping that Ms. Kardashian will serve as an influencer of a different kind.”
Jeffrey Alberts, partner and co-head of law firm Pryor Cashman’s Fintech practice group – an attorney that also spent 6 years as a Federal Prosecutor in the U.S. Attorney’s Office for the Southern District of New York, shared:
“The penalty imposed on Kim Kardashian underscores the risk that celebrities face when they become involved in promoting crypto assets:
- Often, it does not even occur to the celebrities that they are promoting securities.
- Even if they are aware that some crypto assets are securities, they sometimes receive false assurances that the crypto assets they are promoting are not securities.
In addition, celebrities often are unaware that they could face securities enforcement from agencies located in countries where they do not reside. While this enforcement action involves the U.S. Securities and Exchange Commission, Ms. Kardashian previously was criticized by the U.K.’s Financial Conduct Authority for her promotion of EthereumMax token. Regardless of where they reside, celebrities who promote the sale of crypto assets should consider the risk of enforcement actions from authorities in the U.S., as well as enforcement agencies outside the U.S., before promoting those assets, particularly if they do not disclose that they received payments for the promotion.”
Gregory Baker, another former Senior Counsel at the SEC’s Enforcement Division, and now a partner in Patterson Belknap Webb & Tyler’s litigation department and chair of the firm’s securities litigation group, stated:”
“This action is just the latest salvo in the effort by the SEC to regulate crypto assets as securities. Chair Gensler, and the SEC in particular, have made no secret of their view that the vast majority of crypto tokens being issued are securities. The action against Kardashian is likely the tip of the iceberg, given the number of celebrity endorsements of crypto tokens we have seen over the past few years. If they are not disclosing their receipt of compensation, they will likely fall within the cross hairs of the SEC. Kardashian is one of the largest influencers in the planet, so this action will certainly get a lot of attention from both people familiar with SEC issues, and the general public more broadly.”
Thomas Gorman, partner at the international law firm Dorsey & Whitney, and author of the SEP Actions Blog, who served for seven years in key positions at the SEC including as Senior Counsel in the Division of Enforcement, commented:
“This case is a good illustration of when the securities laws apply to crypto. If a person is paid to recommend a security, then they must disclose that fact plus the amount. Here, Ms. Kardashian apparently was paid to recommend a particular crypto security. Note, however, that this rule only applies if there is a security. If, for example, the matter only involved “crypto” in general and no security as perhaps for many TV ads is involved then the securities laws do not apply.”
Conventional wisdom is that while Kardashian may represent the biggest SEC crypto promoter catch, others will soon follow.