Keeping Up with The Kardashian: Kim K’s fine for crypto ‘Pump and Dump’ scheme

By Matt Redley

This week, Kim Kardashian agreed to pay a $1.26 million fine from the Securities and Exchange Commission (SEC) for promoting EtherumMax, an unknown crypto token, to her 250 million followers on Instagram back in June 2021. Kardashian, who is reportedly worth $1.8bn, shared a post to her c.250 million Instagram followers with the caption: “ARE YOU INTO CRYPTO??? THIS IS NOT FINANCIAL ADVICE BUT SHARING WHAT MY FRIENDS JUST TOLD ME ABOUT THE ETHEREUM MAX TOKEN.”

The SEC, the US Government agency created to regulate the securities market and to protect investors, ruled thatKim largely followed the necessary advertising rules, showing that she was not ostensibly trying to circumvent the law. She included a disclaimer that she was not offering financial advice, and used the hashtag #AD.

The legal action ruled in January that boxer Floyd Mayweather Jr, and basketball player Paul Pierce had collaborated to "misleadingly promote and sell" the crypto token in a "pump and dump" scheme which was designed to inflate the price before selling to investors. EthereumMax disputed the allegations at the time of the ruling.

Kardashian’s crucial mistake, the SEC ruled, was that she didn’t declare how much she was paid to promote the scheme, which we now know to total $250,000.

Whilst there is nothing inherently wrong with celebrity endorsements, critics have argued that high-profile endorsements of crypto investments put ordinary investors at risk, who may believe this endorsement in a high-speculative asset is verified and trustworthy.

Taking an unusually promotional approach to the ruling, the SEC Chair, Gary Gensler, published a meme-laden video on Twitter this week, explaining that the Commission had charged the TV megastar and entrepreneur for failing to disclose her payment for promotion of the token.

The SEC’s very public proclamation that Kim did not follow advertising standards represents the SEC’s efforts to discourage similar schemes, rather than a material clamp down across the board. Whilst there have been a number of promotional campaigns of crypto products by celebrities, it is clear that the SEC wanted to make an example of Ms. Kardashian, firing a warning shot to other celebrities that their posts should make clear that they are not offering financial advice.

This is far from the first celebrity endorsement of crypto products. Matt Damon, for example, featured in a slick advert for Crypto.com, using the now infamous line that ‘Fortune Favours the Brave’, at the height of the speculative market that cryptocurrencies were experiencing. The price of Bitcoin has dropped 60% since his advert.

Notably, the categorisation of the crypto products and services is important for how SEC is able to regulate. Celebrities like Matt Damon, Larry David and Tom Brady chose to promote cryptocurrency exchanges where cryptocurrencies and tokens are exchanged, rather than crypto assets themselves, which puts them beyond the jurisdiction of the SEC. As cryptocurrencies and crypto products continue to evolve, regulators will continue to keep a close eye on similar endorsements.

Forever the marketing genius, Kim Kardashian also used the ruling to her advantage, launching a podcast (which has been two years in the making) on the same day as the SEC’s announcement. ‘Kim Kardashian’s The System: The Case of Kevin Keith’ looks at the 1994 murder conviction of Kevin Keith, who’s family have worked since his conviction to clear the convicts’ name. The podcast is now climbing the Spotify Podcast charts in a meteoric way.

In the immortal words of the woman herself, "I can't dwell."