On October 3, the Securities and Exchange Commission (SEC) issued a press release in which it announced that it had reached a settlement in an investigation involving celebrity influencer Kim Kardashian for touting a crypto asset without disclosing the payment she received for the endorsement. Per the SEC release, Kardashian agreed that she had used her Instagram account to endorse a cryptocurrency called EMAX, for which she was paid $250,000. The SEC found that Kardashian did not disclose the fact that she was paid for the endorsement, in violation of securities laws. Without admitting or denying the SEC’s findings, Kardashian agreed to resolve the SEC investigation in return for the payment of $1.26 million, which included $250,000 in disgorgement, $10,000 in interest, and a $1 million penalty.
While this matter was discreet and is concluded, it is nonetheless a noteworthy development for those who offer, sell, or promote crypto-related assets because it is illustrative of the recent pattern of SEC enforcement actions involving crypto assets using existing securities laws. The enforcement action against Kardashian tracks with the SEC’s history of crypto asset classification and recent aggressive enforcement action. The SEC alleged that Kardashian violated Section 17(b) of the Securities Act, otherwise known as the “anti-touting” provision, which prohibits the promotion of a “security” without fully disclosing the receipt of any consideration received for the promotion and the amount thereof. Because Kardashian had failed to publicly disclose her $250,000 payment, the SEC viewed her endorsement of EMAX to be in violation of Section 17(b). Necessary to making these allegations, of course, was the SEC having first made the determination that EMAX, the digital asset Kardashian promoted, was a “security” within the meaning of the Securities Act of 1933. The SEC’s willingness to make that decision and proceed with its enforcement action against…
