November 29, 2022

Volume XII, Number 333

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November 28, 2022

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Kim Kardashian Ordered to Pay Over $1.26 Million for Securities Violation Arising Out of Crypto Endorsement

The SEC instituted settlement proceedings against Kim Kardashian on Monday, alleging that the reality television star and entrepreneur violated the SEC’s anti-touting statute when she failed to disclose compensation that she received in exchange for an Instagram post endorsing cryptocurrency tokens.  The promotion, which Kardashian posted to her Instagram account on June 13, 2021, encouraged her 225 million followers to visit a website operated by EthereumMax, an online company that offers and sells digital “Emax tokens.” Kardashian’s Instagram post included an “#AD” hashtag, but failed to disclose that she received $250,000 from EthereumMax in exchange for the promotion.

The SEC’s cease-and-desist order alleges that Kardashian’s post violated Section 17(b) of the Securities Act of 1933. Section 17(b) prohibits individuals from promoting securities in exchange for compensation without fully disclosing the receipt and amount of the compensation. This anti-touting provision imposes strict liability for any failure to disclose a compensated promotion of a security. The SEC’s recent enforcement of Section 17(b) against individuals promoting cryptocurrency is consistent with its position that most crypto tokens and coins offered for sale may be classified as securities, and may be subject to federal securities laws.  It is noteworthy that the SEC did not allege Ms. Kardashian made any material misstatements or omissions in promoting Emax, and no showing of fraud is required when the agency brings a Section 17(b) claim.

As part of her settlement of the SEC’s claim, Kardashian has agreed to pay $250,000 in disgorgement of the payment she received for the Instagram post, plus a $1,000,000 civil penalty, and over $10,000 in interest. Notably, Kardashian is not the first celebrity to end up in hot water with the SEC after testing out the “crypto influencer” market. Several other high-profile individuals have found themselves subject to similar proceedings, including Floyd MayweatherDJ Khaled, and Steven Seagal. In each action, the SEC alleged that the celebrities failed to disclose fully the compensation that they received in exchange for their endorsements of cryptocurrency, and each of them was required to forfeit any compensation that they received, plus a hefty civil penalty. These recent actions should serve as a cautionary reminder for celebrities and noncelebrities alike who may be approached about endorsing cryptocurrency (or any other security) that any endorsement they make may be subject to federal securities laws.

Nicholas Drews also contributed to this article.

Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume XII, Number 277
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About this Author

Phyllis H. Marcus Partner Consumer Products Food Industry Retail Practices
Partner

With 17 years of experience at the FTC, Phyllis brings a unique advertising and children’s privacy vantage point to our clients.

Phyllis heads the firm’s advertising counseling practice, and focuses on all aspects of advertising, from the initial development of a claim to its ultimate defense in the marketplace. Phyllis’s practice includes claim creation and substantiation, pre-acquisition due diligence, dissemination in traditional and digital media, and both offensive and defensive competitor challenges. She also counsels clients on the intricacies of compliance with the Children’...

202-955-1810
Scott H. Kimpel Capital Markets and Securities Practice Hunton Andrews Kurth Washington, DC
Partner

Scott brings in-depth knowledge of SEC policies, procedures and enforcement philosophy to each representation.

Scott regularly advises clients across a broad sector of the economy facing sensitive reporting, compliance and enforcement matters before the Securities and Exchange Commission and other capital markets regulators. His practice encompasses a wide range of matters involving the securities laws, mergers and acquisitions, corporate governance, regulatory enforcement, administrative law and public policy. Scott also leads the firm’s working group on blockchain and distributed...

202-955-1524
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