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Why the SEC is right to make an example of Kim Kardashian

The feds are shooting a warning to all would-be crypto coin influencers: We're watching you.

Last year, Kim Kardashian posted an ad on Instagram touting a cryptocurrency token to her millions of followers. It was an expensive bit of promo — but not for the reasons anyone who saw the post then might have guessed.

On Monday, the Securities and Exchange Commission announced charges against Kardashian for that post and said the influencer would be fined $1 million as part of a settlement. It’s a major shot across the bow of the burgeoning crypto-celebrity nexus. Other would-be coinfluencers preparing to hawk their wares should think twice before collecting a check to do so.

Kardashian promoted something called “EMAX tokens” from a company called EthereumMax. After a short video promising a “major announcement” to her over 200 million followers, she wrote, "Are you guys into crypto????” She continued: “This is not financial advice but sharing what my friends just told me about the Ethereum Max token! A few minutes ago Ethereum Max burned 400 trillion tokens—literally 50% of their admin wallet giving back to the entire E-Max community."

Other would-be coinfluencers preparing to hawk their wares should think twice before collecting a check to do so.

Even though Kardashian claimed “friends” told her about EthereumMax, the seventh and final hashtag she appended to her story was “#ad,” the routine (and bare minimum) bit of disclosure the Federal Trade Commission requires of influencers when posting sponsored content. Having run afoul of the FTC’s standards in the past, the Kardashians know the dark power #ad provides as a shield from liability when peddling all kinds of nonsense to their followers. By slapping “#ad” on to her post, Kim thought she was casting what has become the influencer version of the Evil Eye against regulatory scrutiny.

But the SEC and the FTC are very different creatures — and cryptocurrency is no tummy tea. There’s a reason you don’t see ads on TV or online for specific securities such as bonds or individual stocks; they’re regulated much more strictly than normal goods and services. Instead, what we’ve seen from celebrities has mostly been commercials promoting crypto markets: for example, that weird Super Bowl ad for starring Matt Damon.

That difference matters. As the SEC wrote way back in 2017, four years before Kardashian’s post, virtual coins and tokens such as the one she was promoting “may be securities, and those who offer and sell securities in the United States must comply with the federal securities laws.” EthereumMax in all of its market materials and public statements showed that it was interested less in acting like a currency or a collectible than as an investment tool, alluding that buying these tokens “would have had a reasonable expectation of profits from their investment in the tokens,” as the SEC put it on Monday.

Those claims were also on EthereumMax’s website, which Kardashian linked out to, which suggested that she backed those claims. But, the SEC stated in 2017, “any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.”

That’s where Kardashian went awry. In announcing that she'd settled, the SEC said Monday that Kardashian had “failed to disclose that she was paid $250,000” for her promo. Kardashian, who neither accepted nor denied the SEC’s findings, will pay a $1 million fine, roughly $10,000 in interest and disgorge herself of the $250,000 the SEC says she was paid. She will also be barred from promoting any crypto asset over the next three years.

It's clear that the SEC means to make an example of Kardashian. In 2018, when the commission sued DJ Khaled and boxer Floyd Mayweather for failing to disclose their payments from a company called Centra Tech to promote crypto coin sales, the two simply paid a fine to have the charges go away with very little fuss or fanfare. Compare that to Monday, when the SEC coupled its announcement with a high production value video from Chair Gary Gensler warning about the pitfalls of crypto investments.

And honestly, I’m OK with that. I’m on record as believing that if cryptocurrency and related blockchain-backed assets such NFTs are to survive, then they need to capture new investors. People who are easily influenced into get-rich schemes like the pump and dump scams that we’ve seen run rampant in the crypto space are usually already struggling to climb the economic ladder. Because rich celebrities are pushing it, it’s only logical for these people to assume that the investments make financial sense.

That’s a fallacy that cuts deep into the American psyche. Government is supposed to help protect people against this sort of predation, and the SEC actually stepping in is key to that. Now, if the SEC could use the energy it showed against Kardashian for some of the other ways the financial industry acts as a vampire, draining the life force and stability of the average American, I’d be even more for it.