The SEC has rung the bell again on a celebrity touting a crypto token offering without adequate disclosure of a paid role. On October 3, 2022, the Securities and Exchange Commission released its order instituting cease and desist proceedings against Kim Kardashian and detailing Kardashian’s violation of Section 17(b) of the Securities Act (see Administrative Proceeding File No. 3-21197). Kardashian came under scrutiny from the SEC after she promoted EthereumMax Tokens (Emax Tokens) via her Instagram account in June of 2021, near the height of the cryptocurrency market, without making the proper disclosures. The SEC had previously fined boxer Floyd Mayweather and rapper DJ Khaled in 2018 for similar violations of the SEC’s “anti-touting” rules.

Kardashian was paid approximately $250,000 in exchange for her social media promotion of the Emax Tokens to her ~225 million Instagram followers. The price of Emax Tokens skyrocketed after her post, and then just as quickly crashed. The key issue here was that the SEC determined that the Emax Tokens constituted securities, and that Kardashian, in her promotion of the tokens, failed to disclose details regarding her compensation from EthereumMax, as required by law (see 15 U.S.C. § 77q (b)). In settlement of the matter, the SEC ordered Kardashian to pay a fine of $1 million and disgorgement of the $250,000 fee she had been paid. In addition, Kardashian agreed that she would forgo receiving any compensation or consideration for promotion of any crypto asset security for three years, and would continue her cooperation with the SEC. Her Instagram post (see image below) did include a disclaimer stating that she was not giving financial advice but simply sharing information her “friends” told her, as well as the hashtag “#ad” (commonly used by influencers in order to satisfy the FTC’s advertising disclosure requirements); however, the disclaimer and hashtag did not meet the requirements of the anti-touting rules, which require, according to the SEC, that:  

“[a]ny celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion,” and that the required compensation disclosures must accompany each applicable promotion.

The SEC has rung the bell again. Influencers would be well advised to hear it chime when promoting crypto projects. They should be mindful that virtually every crypto project could be seen by the SEC as a security, and should seek qualified legal counsel on that question and on the appropriate disclosures.

Kardashian’s Instagram post:

Photo of Christopher O'Brien Christopher O'Brien

Chris O’Brien is a member of Venable’s Entertainment and Media Group and a co-chair of Venable’s Blockchain and Digital Currencies Group. He is a corporate attorney who works with major corporations, established companies, and nascent enterprises. Chris advises buyers, sellers, investors, and joint…

Chris O’Brien is a member of Venable’s Entertainment and Media Group and a co-chair of Venable’s Blockchain and Digital Currencies Group. He is a corporate attorney who works with major corporations, established companies, and nascent enterprises. Chris advises buyers, sellers, investors, and joint venture partners in a range of corporate transactions and financings. He frequently serves as outside general counsel for his clients, including content producers and distributors, talent agencies, operating companies across a range of industries, and varied financing sources.