The spring of 2021 was a heady time in cryptoland. Bitcoin was soaring, but so were all the knock-off cryptocurrencies, even those that were meant to be a joke (remember Elon Musk’s dogecoin necklace?). But it was also the moment a series of celebrities picked to jump on the crypto bandwagon: from Backstreet Boy Nick Carter to former Celtic Paul Pierce to Shark Tank investor Mark Cuban to elderly quarterback Tom Brady. So it wasn’t particularly surprising when on June 13, 2021, Kim Kardashian posted on her Instagram Story about a cryptocurrency called EthereumMax — even though this particular shitcoin (as subprime projects are known in cryptoland) was about as shitty as it gets. EthereumMax was a no-name token without other credible backers — a cool-eyed observer would guess with strong conviction that it was simply a pump and dump, designed to make a quick fortune for its founders and early investors at the expense of naïve retail buyers. “Are you guys into crypto????” began Kardashian, ending with a series of hashtags including “#WTFEMAX” and “#AD.”
It turns out, though, that crypto influencing is not the same as influencing for skin-care products and makeup and bras — at least not when U.S. financial regulators consider the crypto token you are hawking to be a security (that is, more like a share of stock than a commodity or a collectable). And on Monday, Kardashian paid the SEC $1.26 million to settle charges that she illegally promoted a crypto security in her Instagram Story.
The crux of the SEC’s case was that Kardashian did not disclose that she was paid $250,000 for the EMAX tout, violating a 1933 securities law; tagging the post “#AD” and adding the disclaimer “this is not financial advice” were not sufficient, the SEC said. While Kardashian did not admit or deny wrongdoing, she agreed to relinquish her fee, plus interest and a $1 million penalty, and is cooperating with the SEC’s investigation.
The case was designed to grab attention: Gary Gensler, the chair of the SEC, announced the charges himself in a tweet at 7:30 a.m. Monday morning, when most of the agency’s enforcement actions get merely a press release. Gensler then appeared on CNBC to discuss the charges, saying, “This is about an influencer, a high-profile celebrity, on their Instagram site putting out a tout for this token, EthereumMax, which is a security, we’ve determined.” Kardashian is only the latest in a canon of SEC crackdowns against celebs hired to shill crypto projects, Gensler added: Boxer Floyd Mayweather Jr. and DJ Khaled were charged in 2018, and Steven Seagal, the martial-arts actor, was penalized in 2020 — all for “unlawfully touting” crypto projects.
Indeed, celebrities have become a prime target for the SEC in its crusade against illegal securities, which Gensler has made very clear he considers the “vast majority” of cryptocurrencies to be (because unlike stocks, they are unregistered). But that also means the SEC has an enforcement problem, as it now finds itself facing hundreds of potentially illegal shitcoins (as they are commonly known) on the market, as well as armies of individuals paid to promote them. Tasked with policing that scammy landscape, but hampered by a lack of staff, the SEC seems to have resigned itself to going after the Kardashians and Seagals, and in doing so, creating the illusion that it has made crypto a safer place.
It’s also why some of the biggest American crypto companies have lately found themselves in the crosshairs of the SEC, including the crypto exchange Coinbase (which is reportedly being investigated over whether it illegally lists securities), and Ripple, which is currently in court fighting SEC charges that it conducted an illegal securities offering.
And the SEC’s strategy would make sense, if it believed that by punishing the most famous violators, others would look to avoid the same missteps. But judging by the lack of a deterrent effect in the moves again Mayweather or DJ Khaled, it hasn’t quite worked that way. It remains to be seen whether the SEC will also seek to fine any of the other celebrities who’ve recently thrown their support toward various (generally doomed) coins.
And what happened to EthereumMax, the project Kardashian was hawking? It is down 99 percent from its highs last spring — but it did pop 20 percent this morning on news of the settlement.