Kim Kardashian was fined $1.26 million Monday for touting crypto schemes — even as much more high-profile pitches from the likes of Matt Damon and Larry David have gone unpunished. The seeming double standard is a function of a subtle yet crucial distinction in securities law.
Why it matters: Celebrity crypto endorsements drew millions of Americans into the crypto market at the beginning of this year, just before prices cratered.
- The TV ads, which cost up to $6 million each, aired thousands of times and reached millions of viewers. Almost everybody who bought crypto at those levels ended up losing money.
- A single post on Kardashian’s Instagram page, by contrast, for a coin almost no one had heard of, might have caused losses for anyone who bought that coin after seeing the ad. But the number of such people — and the total aggregate losses — were tiny in comparison to the industrial-scale ad campaigns from the big crypto platforms.
What they’re saying: Announcing the Kardashian settlement, SEC chair Gary Gensler attacked celebrity endorsements more generally:
“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: Gensler’s bluster notwithstanding, legally speaking, it’s fine for celebrities and influencers to endorse investment opportunities, including crypto investments. Where Kardashian crossed the line was when she endorsed a crypto asset security.
- The height of the crypto advertising boom was the 2022 Super Bowl, where companies like FTX and Crypto.com spent untold millions touting their websites as a place to buy crypto — and, implicitly, to get rich doing so.
- Kardashian’s relatively low-budget 2021 Instagram post, by contrast — she was paid just $250,000 for it — touted an actual coin, EthereumMax, that the SEC has determined qualifies as a security. That brings it under SEC jurisdiction, which is much stricter than the FTC regulations governing most advertising.
How it works: If you’re endorsing a company, the only rules that apply are the relatively lax ones from the FTC. If you’re shilling a security, then disclosing that you were paid — as Kardashian did with an #AD hashtag — is not enough; you also need to disclose how much you were paid.
The bottom line: If you’re going to tout crypto, tout a crypto companynot a coin.