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Duty to Disclose: Kim Kardashian and the SEC

*The views expressed in this article do not represent the views of Santa Clara University.

CREDIT: Eva Rinaldi | Flickr

The famous family figurehead learned an expensive lesson with a $1.26 million slap on the wrist, agreeing to settle a case involving EMAX cryptocurrency and promising to assist with the SEC’s current investigation. Kim Kardashian promoted the crypto product as a good investment on her Instagram page in June 2021. The order from the SEC states that Kardashian “failed to disclose that she was paid $250,000 to publish a post on her Instagram account about EMAX tokens, the crypto asset security being offered by EthereumMax.”

In failing to disclose, Kim Kardashian breached “advertising and anti-touting” federal securities law. These federal securities laws, as described by Gurbir S. Grewal, the Director of the SEC’s Division of Enforcement,

are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source, and amount of compensation they exchange for the promotion.

Kardashian is not the first of her fellow Hollywood Elites to find herself in hot water with the SEC. Just last year, many celebrities started to endorse crypto assets. Subsequently, the SEC warned investors not to buy anything simply because it is promoted by a celebrity. Further, “regulators have a long history of going after paid celebrities and others for not disclosing that they have been compensated for promoting an investment product.”

In November of 2018, DJ Khaled and superstar boxer, Floyd Mayweather, marked the SEC’s first cases to charge touting violations involving Initial Coin Offerings (ICOs). Similar to Kardashian, the music producer and professional boxer boasted about their crypto earnings to social media. DJ Khaled and Mayweather promoted Centra Tech Inc. cryptocurrency, with Mayweather tweeting: “Starts in a few hours. Get yours before they sell out, I got mine…” He continued on his instagram, alluding to a large amount of money he anticipated making from Centra Tech.

As compensation for their posts, DJ Khaled received $50,000 in promotional payment from Centra Tech and Mayweather was paid $100,000. The pair, like Kardashian, did not disclose promotional payments they received from Centra Tech. DJ Khaled and Mayweather settled with a combined payout of about $800,000. In addition, Mayweather was prohibited from promoting any securities, digital or otherwise for three years. DJ Khaled agreed to the same terms for the following two years.

Kardashian’s lawyer Patrick Gibbs, a partner at Cooley law firm, said in a statement that Kardashian is “pleased to have resolved this matter with the SEC.” He added that the agreement allows her to “move forward with her many different business pursuits.”

Celebrities always have a duty to disclose when they are paid to promote an investment in securities. While this was resolved for Kim Kardashian, her case should be a reminder to influencers that the law requires disclosure to the public with full transparency.


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