Kim Kardashian will pay $1.26 Million to settle Securities and Exchange Commission probe on her promotion of cryptocurrency

Kim Kardashian will pay $1.26 million to settle regulatory allegations that she failed to disclose money she was paid for promoting a cryptocurrency to investors, the Securities and Exchange Commission said.

Ms. Kardashian should have revealed that she was paid when she promoted EthereumMax crypto tokens on her Instagram account, the SEC said. Her post contained a link to the token offerer’s website, which provided instructions for how to invest in EMAX, the SEC said. Federal securities laws say 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. Section 17(b) of the Securities Act makes it unlawful for any person to: publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof

Specifically, Kardashian promoted a securities offering conducted by EthereumMax, an online company with a public website (“EthereumMax” or the “Company”), in which it offered and sold digital “Emax tokens” (“EMAX”) to the general public. The EMAX tokens promoted by Kardashian were offered and sold as investment contracts and therefore securities pursuant to Section 2(a)(1) of the Securities Act, according to the SEC Order. Kardashian’s crypto asset security promotion occurred after the Commission warned in its July 25, 2017, DAO Report of Investigation that digital tokens or coins offered and
sold may be securities, and those who offer and sell securities in the United States must comply
with the federal securities laws, the Order says.

The SEC’s order finds that Kardashian violated the anti-touting provision of the federal securities laws. Without admitting or denying the SEC’s findings, Kardashian agreed to pay the aforementioned $1.26 million, including approximately $260,000 in disgorgement, which represents her promotional payment, plus prejudgment interest, and a $1,000,000 penalty. Kardashian also agreed to not promote any crypto asset securities for three years.

The SEC’s investigation, which is continuing, is being conducted by Jon A. Daniels, Alison R. Levine, and Pamela Sawhney of the Enforcement Division’s Crypto Assets and Cyber Unit, and Kerri Palen, Lisa Knoop and Victor Suthammanont of the New York Regional Office. The case was supervised by Mark R. Sylvester of the Crypto Assets and Cyber Unit and Carolyn Welshhans.

Ms. Kardashian agreed to settle the SEC claims without admitting or denying wrongdoing. She also agreed to cooperate with the SEC’s ongoing investigation, the agency said.

As part of its action against Ms. Kardashian, regulators alleged that EMAX is an investment contract that should be overseen by the SEC. That gives the SEC the ability to question Ms. Kardashian’s role in the investment offering.

As part of her settlement, Ms. Kardashian agreed for three years to forgo receiving any money for promoting crypto tokens that fall under the SEC’s jurisdiction.

JEFFREY NEWMAN is a whistleblower lawyer with the firm Newman & Shapiro and can be reached at jNewman@NewmanShapiro.com.