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SEC Settles Charges Against Kim Kardashian for Unlawful Touting of Crypto Assets
Practical Law Legal Update w-037-2187 (Approx. 5 pages)
SEC Settles Charges Against Kim Kardashian for Unlawful Touting of Crypto Assets
by Practical Law Finance
| Published on 11 Oct 2022 • USA (National/Federal) |
In the latest celebrity crypto touting case, the SEC settled charges against Kim Kardashian for unlawfully touting EMAX crypto tokens.
On October 3, 2022, the SEC issued a cease-and-desist order settling charges against Kim Kardashian for unlawfully touting EthereumMax (EMAX) crypto tokens. The SEC alleged that on June 13, 2021, Kardashian used her Instagram account to promote EMAX crypto tokens for $250,000 in compensation. According to the order, the EMAX tokens were sold as investment contracts, making them securities under Section 2(a)(1) of the Securities Act, and Kardashian did not disclose the payment for the promotion, which constitutes a violation of the anti-touting provision of Section 17(b) of the Securities Act of 1933, as amended (Securities Act) (15 U.S.C. § 77a et seq.).
Kardashian was ordered to disgorge the $250,000 she was paid for the promotion, as well as payment of prejudgment interest of $10,415.35 and a civil money penalty in the amount of $1,000,000. The settlement terms also provide that Kardashian is proscribed from paid promotion of crypto assets for three years from the date of the order.
The SEC Division of Enforcement and Office of Compliance Inspections and Examinations warned in November 2017 of the need for compliance with federal regulations when promoting crypto assets in its Statement Urging Caution Around Celebrity Backed ICOs. This SEC statement reminded market participants that any celebrity who promotes a virtual token much disclose the nature, scope, and amount of compensation received in exchange for the promotion. The statement added that a failure to make this disclosure constitutes a violation of the anti-touting provision of federal securities laws.
The SEC action against Kardashian is the latest in a line of celebrity crypto touting cases brought by the SEC. In all cases, the SEC brought an action against the individual for promoting a crypto asset on social media for compensation without disclosing the paid nature of the promotion in violation of Section 17(b) of the Securities Act. In each case, the SEC ordered:
- Disgorgement of compensation for the promotion.
- Penalties and interest.
- A prohibition from promoting crypto assets for an agreed period of time.
Recent SEC celebrity touting actions include:
- Steven Seagal. On February 27, 2020, the SEC settled charges against Steven Seagal for touting on his social media Bitcoiin2Gen tokens that were issued in an initial coin offering (ICO) from February to March 2018 without disclosing he was compensated for the promotion. Seagal was ordered to disgorge the $157,000 he was compensated and pay prejudgment interest of $16,448.76, as well as a civil money penalty in the amount of $157,000. The order also proscribed Seagal from paid promotion of crypto assets for three years from the date of the order.
- Khaled Khaled (DJ Khaled). On November 29, 2018, the SEC settled charges against DJ Khaled for touting on his social media in September 2017 Centra Tech, Inc. tokens offered and sold in an ICO without disclosing he was compensated for the promotion. Khaled was ordered to disgorge $50,000 of his compensation and pay prejudgment interest of $2,725.72, as well as a civil money penalty in the amount of $100,000. The order also proscribed Khaled from paid promotion of crypto assets for two years from the date of the order.
- Floyd Mayweather. On November 29, 2018, the SEC settled charges against Floyd Mayweather for touting on his social media between July 2017 and January 2018 Centra Tech, Inc. tokens issued in three ICOs without disclosing he was compensated for the promotions. Mayweather was ordered to disgorge the $300,000 he was paid for the promotions and pay prejudgment interest of $14,775.67, as well as a civil money penalty in the amount of $300,000. The order also proscribed Mayweather from paid promotion of crypto assets for three years from the date of the order.
For further information on SEC regulation of digital assets, see Practice Note, SEC Regulation of Digital Assets.