The Securities & Exchange Commission (SEC), a federal agency charged with regulating the financial markets, recently charged Kim Kardashian with unlawfully promoting a crypto asset called EthereumMax in June 2021. The SEC also reported that Ms. Kardashian had agreed to settle the charges by paying a $1.26 million dollar fine, cooperating with the SEC’s ongoing investigation into the matter, and agreeing not to promote any crypto asset security for three years.
The SEC accused her of promoting a crypto asset security sold by EthereumMax on Instagram without disclosing that she had been paid to promote it. At the time, Ms. Kardashian had over 225 million Instagram followers. She was paid $250,000 to promote the EthereumMax network as well as its crypto asset, the “EMAX Token.” She wrote “sharing what my friends just told me about the EthereumMax token!” and provided a link to a page on the EthereumMax website providing instructions for purchasing EMAX tokens.
Under U.S. law, people who promote certain stocks or crypto securities are required to disclose not only that they are getting paid to do so, but also the amount they are being paid and the source of those payments. The SEC has previously warned celebrities looking to make money in the crypto asset space that they must follow these rules and disclose when they are being paid to promote crypto. The SEC has already publicly cracked down on celebrities that have violated these laws, including DJ Khaled, Floyd Mayweather and Steven Seagal.
Launched in May 2021, EthereumMax was little known to crypto investors or experts before Ms. Kardashian’s post. While it exists on the Ethereum blockchain, it has no connection with any of Ethereum’s developers, nor has it disclosed the names of any of its own developers or employees. Despite having a miniscule share of the crypto market, it promised a 3% return on investments.
After a very brief increase in value following Ms. Kardashian’s Instagram post, EthereumMax has declined in value by around 98% since June 2021. Ms. Kardashian, along with Floyd Mayweather and former basketball Paul Pierce, was sued in January 2022 by investors in a class-action lawsuit claiming that the celebrities made false or misleading statements about EthereumMax in order to artificially boost its price and make themselves a profit. The class action suit has revealed the identity of EthereumMax’s founders, Steve Gentile and Giovanni Perone, and an SEC investigation appears to be ongoing.
The ongoing saga of EthereumMax is a cautionary tale that should give aspiring crypto investors pause when they see celebrities promoting crypto assets on social media or elsewhere.