Explained | Why did the U.S. SEC charge Kim Kardashian for ‘touting’ cryptocurrency?

The socialite had not disclosed that she received $250,000 for promoting the crypto token EthereumMax- mandatory as per federal securities laws

The story so far: North American TV star Kim Kardashian on Monday agreed to pay $1.26 million as fees and penalties to settle charges levelled by the United States’ Securities and Exchange Commission (U.S. SEC). The regulatory body found her guilty of touting a crypto asset, offered and sold by EthereumMax, through her social media account without disclosing the payment she received for its promotion. 

As per the order, the reality TV star, known for chronicling her life in Keeping Up with the Kardashians (2007-21) has neither denied nor admitted to the findings. She agreed to not promote any crypto assets for three years as well as cooperate with the commission’s ongoing investigation. “This 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,” SEC Chair Gary Gensler stated. 

Ms Kardashian did not disclose that she received $250,000 for promoting EMAX tokens, offered by EthereumMax, on her Instagram account, which has 225 million followers. The promotional post was captioned, “This is not financial advice but sharing what my friends told me about the Ethereum Max token!” 

The post also had a link to EthereumMax’s website providing instructions to potential investors about purchasing EMAX tokens. The latter helps mine the crypto-coin.  

The socialite’s actions were in violation of Section 17 (b) of the Securities Act. The section deems it unlawful for an individual to publicise or circulate any promotional material or communication without disclosing the nature, sources and amount of compensation they received in exchange for the promotion. This ensures transparency and tackles concerns pertaining to potential bias towards the publicised security.  

The second-eldest Kardashian sibling is also named in a lawsuit along with former NBA player and TV personality Paul Pierce and Boxer Floyd Mayweather. The trio is alleged to have made misleading claims about EMAX tokens that led to investors incurring heavy losses. In fact, after ESPN fired Mr Pierce last year, he tweeted about having made more money with the crypto asset than with the channel.  

EthereumMax claims to be a progressive ERC-20 token built on the secure Ethereum network token, which is the among the world’s most popular cryptocurrencies.