What Kim Kardashian’s SEC fine means for the crypto gold rush

Kim Kardashian just received a fine over a million dollars to boost a cryptocurrency online – but she’s not the only celebrity with ties to the crypto world.

For the many other A-listers who have thrown their weight behind cryptocurrencies, crypto companies and non-fungible tokens, or NFTs, Kardashian’s $1.26 million settlement with the Securities and Exchange Commission may mark a turning point in how Hollywood’s biggest names remain thinking about this. relatively unregulated online economy.

“The SEC aims to take enforcement actions … that will gain widespread attention and influence market participants’ behavior going forward,” said Philip Moustakis, an attorney at the law firm Seward & Kissel. “Of course, an action against Kim Kardashian is ideal for these purposes.”

In short, he continued via email, the SEC hopes that Kardashian — a media personality both on and offline — “will serve as an influencer of a different kind.”

Kardashian was fined for failing to disclose that she had been paid for an Instagram post promoting EthereumMax crypto tokens, but she’s not the first big name to find herself in regulatory hot water over crypto deals.

Floyd Mayweather Jr. and DJ Khaled were both charged in 2018 for not disclosing that they had been paid to promote various crypto investments, and in 2020, the same happened to Steven Seagal.

According to a former SEC official, a warning on celebrity-endorsed cryptocurrencies that the agency released in 2017 was largely prompted by Mayweather, Jamie Foxx and Paris Hilton claiming crypto assets.

As such, the ex-official said, Kardashian’s fine does not necessarily represent a change in direction for the SEC, but marks a stronger stance than the one the agency took five years ago.

“In bringing this case forward, [the SEC] has basically said, ‘Look, you all have fair warning. Now we’re filing a case,” the former official, who asked to remain anonymous to protect relationships with former colleagues, told The Times. “It’s definitely paying attention to celebrities.”

It can be difficult to talk about crypto without mentioning the sometimes bizarre overlap that the still relatively niche financial technology has with the entertainment industry. In January, Hilton talked to late night TV host Jimmy Fallon about the anthropomorphic monkeys they both own. Less than a month later, marquee names included Larry David and LeBron James star in cryptocurrency ads during the Super Bowl. Matt Damon has promoted crypto investing as an act world-historic braveryand last year crypto company MoonPay made a not-so-subtle cameo in one music video starring Post Malone and the Weeknd.

The questions still abound about why, exactly, so many celebrities have jumped aboard the crypto hype train — and what financial incentives they might have for doing so.

When the crypto market entered a period of prolonged downturn – some celebrities, including Fallon, have removed NFTs from their Twitter profile pictures – Kardashian’s bot indicates that regulators, at least, are still watching the space with interest.

“The SEC and regulators globally often introduce what they call asymmetric information — when one person knows something others don’t, turning an otherwise fair transaction into a case of potential manipulation,” Mike Castiglione, director of digital asset regulatory affairs at the regulator Eventus, said via e-mail. “This week’s enforcement action means that celebrities, or anyone else, should think about whether there might be a perception of withholding information when making crypto sponsorship deals.”

Celebrity endorsements “made open and transparent” can make a crypto-asset more credible by linking it to a public figure’s reputation, said Castiglione, whose company counts several cryptocurrency trading platforms among its clients. But “they can also be misused for pump-and-dump schemes” just as with other types of assets, he added.

It’s not the first time A-listers have come under regulatory scrutiny for their crypto leanings.

“The SEC has been pursuing other celebrities for promoting tokens that the SEC believes are securities for some time now,” attorney Jason Gottlieb, a partner at Morrison Cohen and its head of clerical and regulatory enforcement, said in an email. “The new point in [Kardashian] the settlement is that the token in question was marked as a security” — though he added, “There has been no action against that token that found it to be.”

The case may also be a sign of more systemic problems.

Rep. Brad Sherman (D-Northridge), perhaps Congress’s foremost cryptoskepticcalled Kardashian’s failure to report a “blatant violation” of SEC law, but said her high-profile promotion of the cryptocurrency also hints at a larger business of using influencers to inflate crypto prices.

“The very fact that you’re being paid to show it means it’s an ongoing business that pushes the price up,” Sherman said, adding that he wants higher fines and not just for Kardashian. “I think Kardashian is either a constituent or lives just outside my district, so I wish her well,” he said. “But in this case, she should have received better legal advice.”

Times staff writer Freddy Brewster contributed to this report.