November 30, 2022

Volume XII, Number 334

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The SEC Kept up With a Kardashian

The SEC has launched its latest crypto asset-related charges – this time against a public figure currently launching her own latest product, albeit of a very different form: loungewear.

The SEC recently charged Kim Kardashian for “touting” on social media a crypto asset without disclosing that she received a payment of approximately $250,000 for that promotion, thereby violating Section 17(b) of the Securities Act of 1933.

Notably, the SEC used this case as another opportunity to declare a crypto asset (EMAX tokens) to be a “security” without taking action against EthereumMax, the issuer of the asset.

Kardashian’s post included a link to a website that provided instructions for potential investors to purchase EMAX tokens. The SEC settlement order contains a finding that the tokens were offered and sold as investment contracts, and therefore securities pursuant to Section 2(a)(1) of the Securities Act of 1933.  A footnote to the order indicates that its findings are not binding on any other person or entity in this or any other proceeding.  The SEC has not to date commenced a separate action against EthereumMax alleging it conducted an unregistered offering of securities or against any crypto exchanges that offered the tokens. 

Kardashian’s promotion occurred after the SEC warned in its July 25, 2017, DAO Report of Investigation that digital tokens may be securities, and that those who offer and sell securities in the U.S. must comply with the federal securities laws. The post also followed the SEC’s Division of Enforcement and Office of Compliance Inspections and Examinations statement that any celebrity or other individual who promotes a virtual token or coin that is a security must make certain disclosures.

Without admitting or denying the SEC’s findings, Kardashian agreed to pay $1.26 million, including approximately $260,000 in disgorgement representing her promotional payment. Kardashian also agreed to not promote any crypto asset securities for three years and to not commit or cause any future violations of Section 17(b). 

The SEC previously settled charges related to other celebrity endorsements, including with boxer Floyd Mayweather Jr., basketball player Paul Pierce, actor Steven Seagal and music producer DJ Khaled for failing to disclose compensation received for promotion of digital securities. 

This recent case serves as yet another reminder of the SEC’s eagle-eyed focus on crypto assets and investment activities and the need for all market participants to act with caution.

Copyright 2022 K & L GatesNational Law Review, Volume XII, Number 279
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About this Author

Of Counsel

Keri Riemer is of counsel in the Asset Management and Investment Funds group. She provides guidance to investment managers and funds on a broad range of federal securities law issues, and has extensive experience representing registered investment companies and their advisers. With her experience as Senior Counsel at the Securities and Exchange Commission, in-house counsel at a large asset management firm and outside counsel at law firms, Keri brings a unique perspective to helping clients address legal and regulatory challenges relating to their business growth goals...

212-536-4809
Eden L. Rohrer Investment Management K&L Gates New York, NY
Partner

Eden Rohrer is a partner in the firm’s New York office. She concentrates her practice in securities broker-dealer regulatory, compliance, enforcement defense, litigation and arbitration matters in the financial services and fintech industries. She advises emerging and established companies on the development, regulation and operation of funding portals, capital raising platforms and trading platforms, including in connection with angel investing, crowdfunding, in the private and public securities markets. In addition, Ms. Rohrer advises clients with respect to digital securities and assets...

212.536.4022
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