On Monday, Kim Kardashian was hit with a .
26 million fine for promoting cryptocurrency investments, despite the fact that much more prominent promoters, such as Matt Damon and Larry David, have been left unpunished. The apparent double standard results from a nuanced but critical distinction in securities law.
The Reason’s Significant: Millions of Americans have lured into the cryptocurrency market at the beginning of this year thanks to celebrity endorsements, just in time to see prices plummet.
- Advertisements on television, which can cost as much as $6 million, were shown to many people many times. Almost everyone who invested in cryptocurrency at that time lost money.
- In contrast, a single Instagram post by Kardashian promoting a cryptocurrency that almost no one had heard of could have resulted in financial losses for anyone who bought the cryptocurrency on the strength of the post. When compared to the massive scale of the advertising campaigns run by the major cryptocurrency platforms, the number of such people and the total aggregate losses are negligible.
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Their Exact Words: SEC chairman Gary Gensler, in announcing the Kardashian settlement, criticized celebrity endorsements in general:
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.”
Between the Lines: despite Gensler’s bombast, it is perfectly legal for public figures to promote financial investments like cryptocurrencies. Kardashian went too far when she gave her stamp of approval to security based on cryptocurrency.
- Companies like FTX and Crypto.com spent untold millions advertising their websites during the 2022 Super Bowl, encouraging viewers to visit them to buy a cryptocurrency and, by implication, become wealthy.
- However, in 2021, Kardashian promoted a real coin, EthereumMax, which the SEC has ruled is security, in an Instagram post for which she was paid a relatively modest 0,000.
Because of this, it is now subject to SEC regulation, which is much more stringent than the FTC regulations that govern most forms of advertising.
Here’s how It Functions: The Federal Trade Commission’s guidelines, which are relatively lax, are the only ones that apply if you’re making an endorsement of a company. If you’re going to promote security for money, as Kim Kardashian did with a #AD hashtag, you should also reveal how much you were paid to do so.
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The Bottom Line: If you’re going to tout crypto, tout a crypto company, not a coin.