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Kim Kardashian to pay $1.26 million to SEC in crypto settlement

CBS News 10/3/2022 Alex Sundby
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Kim Kardashian is paying $1.26 million in a settlement agreement with the Securities and Exchange Commission amid charges that she unlawfully touted a cryptocurrency without disclosing she was being paid for the promotion.

Kardashian is paying the settlement without admitting to or denying the SEC's findings, the agency said on Monday. She also agreed to not promote any crypto asset securities for three years.

The fine is linked to a cryptocurrency called EthereumMax, or EMAX, which was pitched to investors as a disruptive new cryptocurrency. Kardashian was one of several celebrities, along with boxer Floyd Mayweather and former NBA star Paul Pierce, who used their fame to hype the crypto asset and who were the focus of a class-action lawsuit in January over their endorsements.

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"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 said in a statement.

EMAX's dwindling value

EMAX launched last May with an initial trading volume of $16.1 million, according to data from CoinMarketCap. That figure grew after social media postings by Kardashian and Pierce as well as incentives from Mayweather — such as signed boxing gloves, ringside tickets and discounts to those who purchased fight tickets online using EMAX Tokens — the suit alleged. At one point, EMAX's trading volume grew to almost $108 million. 

The digital coin's creators — Steve Gentile of Connecticut and Giovanni Perone of Florida — sold their holdings of EthereumMax "for substantial profits" as hype around the currency swelled, according to the suit.

EMAX's price fell 3.3% in Monday morning to the equivalent of 0.000000004246 cents, according to CoinMarketCap.

At the time she promoted EMAX, Kardashian had roughly 225 million followers on Instagram, according to securities regulators. 

"Kardashian promoted a crypto asset security on her Instagram account in exchange for financial payment from the issuer," the SEC said in a legal document. 

The agency said Kardashian will cooperate in its ongoing investigation.

Disclosing their payday

Suing celebrities who endorse products has historically proven difficult because lawyers must prove the person earned money illegally. In Kardashian's case, the SEC said she failed to disclose that she was paid $250,000 to publish a post on her Instagram account about EMAX tokens. Kardashian's post also contained a link to the EthereumMax website, which provided instructions for potential investors to purchase EMAX tokens.

"The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source and amount of compensation they received in exchange for the promotion," Gurbir Grewal, director of the SEC's division of enforcement, said in a prepared statement.

The SEC said Kardashian's settlement includes about $260,000 in disgorgement, covering the amount she earned from promoting the cryptocurrency plus interest, as well as a $1 million penalty. 

Kardashian isn't the first celebrity to attract the attention of regulators for their involvement in cryptocurrency. In 2018, the agency settled charges against Mayweather and music producer DJ Khaled for failing to disclose payments they received for promoting investments in digital currency.

The Associated Press contributed to this report. 

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