Kim Kardashian's SEC Settlement Is a Warning to All Influencers

Kim Kardashian is a brand in her own right. Typically, her intrinsic star quality lifts the companies and products she celebrates. But finance, along with healthcare, is an area where her beaming spotlight shines a harsh glare. And in the case of her promotion of crypto company EthereumMax, Kardashian appeared to cross a line with federal regulators. Kardashian has settled with the SEC, shelling out a $1.26 million fine for failing to publicly disclose that she was paid for promoting the crypto firm. The fine includes about $260,000 in disgorgement, her promotional payment and prejudgment interest combined, as well as a $1 million penalty. She has also agreed to cooperate with the ongoing investigation and to not promote crypto assets for three years. The consequences for Kardashian, whose net worth is estimated at $1.8 billion, are minimal. But the SEC settlement could strain relations with her brand partners in the short term. For influencers without Kardashian's ample financial resources, the SEC case represents a cautionary tale for what can go wrong when pumping up a financial brand's image. Crypto Platform OKX Aims to Build Brand Trust Through Responsible Investment Messaging Inking endorsement deals with brands such as Beyond Meat and apparel makers Balenciaga and Stuart Weitzman, Kardashian has proven to be an influencer brands want to work with. The value of a Kim Kardashian post on social media is huge. "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," SEC chairman Gary Gensler said in a statement shared on the SEC's website. "We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals." Kardashian originally made an Instagram post about EthereumMax in June 2021. The post was captioned, “This is not financial advice but sharing what my friends have just told me about the EthereumMax token!” The post linked directly to the crypto brand's website, where consumers could purchase the digital currency. What the celebrity didn't share with her 225 million followers on Instagram at the time was how she was paid $250,000 for the post through an intermediary. Though Kardashian did add "#ad" to the bottom of her post, the SEC found that insufficient. Back in 2017, the SEC released a statement warning celebrities about using social media networks to urge consumers to purchase stocks and other investments. "These endorsements may be unlawful if they do not disclose the nature, source and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement," the statement read. "The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source and amount of compensation they received in exchange for the promotion,” the SEC's enforcement division director Gurbir Grewal said in a statement. “Investors are entitled to know whether the publicity of a security is unbiased, and Ms. Kardashian failed to disclose this information.” Kardashian, former NBA star Paul Pierce and boxer Floyd Mayweather were all sued by EthereumMax investors for helping to inflate the value of the crypto company by posting on social media. The value of EthereumMax was just $0.000000005474 as of today, according to Coin Market Cap. Authenticity still is king Though Kardashian's situation is specifically related to the SEC's crackdown on crypto- and investment-related endorsements, the situation does bring up the issue with transparency in celebrity- or influencer-backed endorsements of brand products. "Authenticity from brands is critical to many of their audiences, and content generated organically among consumers is one of the best pathways to influence today’s highly online demographics," said Ed Hill, svp of EMEA at shopper engagement platform Bazaarvoice. Consumers need to be able to trust that brands and influencers are authentic in what is being sold. "Over two thirds of consumers suggest that everyday influencers within their network are the key motivators of their purchase decisions, compared to just 12% for celebrities," Hill added. "However, cases such as this can devalue the entire concept, undermining trust and consumer confidence—not to even mention the damage it can do to people’s bank balances." The Great Fail: Crypto’s Terra-ble Crash