Is Kim Kardashian's SEC Fine Justified?

Aron Solomon

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This morning, the Securities and Exchange Commission fined Kim Kardashian $1.26 million for promoting EMAX crypto tokens on Instagram without disclosing she was being paid by the company to do this promotion.

The SEC’s position is that Kardashian was paid $250,000 to post about EMAX tokens on her Instagram account. EMAX is a cryptocurrency asset offered for sale by a company known as EthereumMax.

Defense attorney, Michele Finizio, argues that:

“The SEC has consistently warned high-profile celebrities and social media influencers that they absolutely need to let the public know when they’re being paid to back a cryptocurrency asset. The entire point of a celebrity suggesting to people that they should invest in a cryptocurrency is that many people will listen. If they don’t know the celebrity has been paid for the promotion, this can harm people who are considering investing in the token based on the promotion.”

This is echoed by the SEC Chair, Gary Gensler:

"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,"

Gensler added:

"We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals."

Per the SEC press release, while Kardashian didn’t admit or deny the SEC’s allegations, she agreed to pay the $1.26 million, which breaks down into pproximately $260,000 in “disgorgement” - the amount she was paid to do the promotion - plus prejudgment interest, plus a $1,000,000 penalty.

What today’s SEC’s decision might also signal is that the U.S. is going to get more serious about celebrity and influencer endorsements. The EU has taken the lead here, forcing celebrities and influencers to be crystal clear if what they are doing on social media is a paid promotion. The penalties in the EU have been applied more consistently and have been more effective than they have in the U.S. in promoting the kind of transparency necessary to protect consumers.

Perhaps the most interesting part of today’s SEC decision is that Kardashian also agreed to not promote any crypto asset securities for three years. What will actually determine whether or not she does, is how much money is on the line. With many speculating whether this ongoing crypto winter is some form of permanent crypto climate change or things will eventually improve, the value of crypto endorsements by massive celebrities such as Kim Kardashian will continue to rise. For Kardashian, like any other endorsement decision, whether she tries to find a way around the three-year crypto promotion ban will depend entirely upon a calculus of the potential gain and risk.

This really is the nature of celebrity endorsements in the U.S. today. There is no absolute no, just as there is no absolute yes as to whether there will be an offer sufficiently tempting as to risk the SEC’s ire, Kim Kardashian has the brand she has because she’s very creative and, armed with her new law degree, few would doubt that she if there is a way to promote crypto that might not violate today’s SEC fine, she will find it.

About Aron Solomon

A Pulitzer Prize-nominated writer, Aron Solomon, JD, is the Chief Legal Analyst for Esquire Digital and 24-7 Abogados. He has taught entrepreneurship at McGill University and the University of Pennsylvania, and was elected to Fastcase 50, recognizing the top 50 legal innovators in the world. Aron has been featured in Forbes, CBS News, CNBC, USA Today, ESPN, TechCrunch, The Hill, BuzzFeed, Fortune, Venture Beat, The Independent, Fortune China, Yahoo!, ABA Journal, Law.com, The Boston Globe, NewsBreak, and many other leading publications.

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Aron Solomon, JD, is the Chief Legal Analyst for Esquire Digital, who has taught entrepreneurship at McGill University and the University of Pennsylvania, and was elected to Fastcase 50, recognizing the top 50 legal innovators in the world.

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