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Hello, and happy October. Let’s talk crypto scams.
Kim Kardashian’s pocketbook is $1.26 million lighter this week after she was ordered to pay a fine to the Securities and Exchange Commission (SEC) for promoting the cryptocurrency EthereumMax (also known as EMAX, and not affiliated with Ethereum) on Instagram without telling her followers she was paid $250,000 to do so.
The SEC is struggling to catch-up to the ways cryptocurrencies and non-fungible tokens (NFTs) are promoting themselves. Celebrities are always going to be in high demand to help brands stand out, but investing is a different game. It’s taken regulatory agencies a while to get off their back feet and hand down penalties for shady dealings.
The rules are simple, though: If a celebrity is promoting any kind of cryptocurrency or NFT, they also need to be transparent about whether they own any themselves, or were paid to do the ad.
“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 Monday.
Kardashian’s case was one we’ve seen play out many times on social media since crypto became popular. Recently a boatload of celebrities—, including Tom Brady, Eminem and Gwyneth Paltrow—were chastised for not disclosing they owned NFTs while promoting the assets. That warning didn’t come with a fine, but watchdog group Truth in Advertising said it “found that celebrity NFT promotions is an area rife with deception.”
The cryptocurrency ecosystem is much the same. Celebrities such as Matt Damon have promoted cryptocurrencies and markets (Damon in part responsible for those garish “fortune favors the brave” ads plastering much of LA Live and the new Crypto.com arena).
In 2018, boxing star Floyd Mayweather and DJ Khaled were fined by the SEC for misleading investors by not telling them they were paid to market a cryptocurrency called Centra. Mayweather forked over $614,775 in fines, and Khaled paid $152,725.
EthereumMax, the cryptocurrency Kardashian was promoting, has run into similar problems before. In January, Kardashian, Mayweather and a handful of others were sued in a class-action lawsuit brought by five investors that accused them of being part of a scheme where they didn’t disclose they were paid to promote EthereumMax.
Even if it’s not a scandal, plenty of A-listers are involved in the crypto game now. Paris Hilton and Jimmy Fallon’s insufferable late night bit about Bored Ape Yacht Club in January kicked off a year where seemingly every celebrity dipped into crypto.
Reese Witherspoon’s Culver City-based Hello Sunshine inked a deal to turn NFTs into movies; Snoop Dogg holds $17 million of Ethereum NFTs. Even Nick Carter won’t quit playing crypto games, and backed an obscure coin called SafeMoon – Carter and Jake Paul, Soulja Boy and Lil Yachty are defendants in a class action lawsuit that claims they inflated SafeMoon’s value by promoting it with plans to sell (what looks like a classic pump-and-dump scheme).
Even if they aren’t paid outright to promote their holdings, a celebrity simply announcing he or she owns a particular asset could inflate its perceived value. It can also have the opposite effect; see Bloomberg’s rundown of celebrity crypto endorsements gone wrong.
Kardashian was likely a target of the SEC for two reasons: she’s a household name, and with an estimated net worth of $1.8 billion. And she’s got the cash to pay up. The SEC is clearly looking to make an example of her.
But she’s only the tip of the crypto iceberg. I’d be willing to bet there’s thousands of influencers with much less clout conning their followers into buying dying assets as you read this.
Platforms such as Facebook, Twitch and Instagram, often used by influencers to hawk crypto schemes, have taken an increasingly hard line against the practice.
I’d argue that the seedy underbelly of online crypto investing is worth further investigating – after all, many of these influencers’ followers are younger, and they might not yet have the critical thinking skills to spot a scam before it siphons out their (or their parents’) savings. And because some aren’t as well-known as Kardashian, we might not know of the next big crypto scam until it's too late.
Speaking of this, now’s a great time to brush up on tips to safely invest in crypto. – Samson Amore
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