The Securities and Exchange Commission (SEC) has been making headlines recently by enforcing U.S. securities laws surrounding crypto assets. The SEC has also taken an extremely aggressive stance regarding high-profile celebrities and professional athletes who have promoted crypto assets, sending a strong message that any violations of these laws will be met with significant consequences. This is a clear signal from the SEC that it is willing to use its authority to protect the public from fraudulent activity involving the promotion and sale of crypto assets. Here are some of the most recent cases and settlements.
Kim Kardashian and EthereumMax
Kim Kardashian, the American media personality and entrepreneur, recently settled a lawsuit with the SEC for failing to disclose payments she received for promoting EMAX crypto asset tokens sold by EthereumMax.
The reality star had shared an Instagram post about the cryptocurrency with her 193 million social media followers. She captioned it: “Excited to announce I’m partnering with #EthereumMax! So happy I can finally share this news with you all” without disclosing that she was paid for the promotion.
According to the SEC’s complaint, Kardashian should have disclosed that EthereumMax LLC compensated her in exchange for posting about their crypto asset tokens on Instagram. The SEC alleged that Kardashian violated antifraud provisions of federal securities laws by omitting any payment disclosure and misleading investors into believing her endorsement was independent and impartial.
As part of the settlement, Kardashian agreed to pay a $1 million fine, return the $250,000 plus prejudgment interest she earned by promoting the EMAX tokens, and refrain from promoting any crypto assets for three years.
Paul Pierce and EthereumMax
The former National Basketball Association star Paul Pierce settled a lawsuit with the SEC for allegedly making false and misleading statements about a cryptocurrency on his social media accounts without disclosing that he was being compensated for doing so.
Pierce was accused of failing to disclose that he received more than $244,000 in EMAX tokens in exchange for promoting the tokens on Twitter. Pierce also tweeted misleading statements about EMAX, including posting a screenshot of an account showing significant holdings and profits without disclosing that his holdings were much lower than those depicted in the screenshot, the SEC alleged.
Without admitting or disputing the SEC’s findings, Pierce agreed to the settlement’s terms, which included paying a fine of more than $1.1 million, $240,000 in disgorgement, and prejudgment interest. Pierce also agreed to refrain from promoting any securities involving crypto assets for three years.
Steven Seagal, Floyd Mayweather Jr., and DJ Khaled
Despite the more recent headlines, the SEC has been cracking down on celebrities violating securities laws related to digital assets for some time.
In 2020, Steven Seagal, an American actor, reached an agreement with the SEC after failing to disclose that he was being paid for promoting Bitcoiin2Gen on social media. According to the SEC’s order, Seagal was compensated over $300,000 in cash and cryptocurrency for his endorsements of the initial coin offering (ICO) in 2017.
The agreement stated that Seagal would not be held criminally responsible or face a monetary penalty but would be barred from participating in any digital securities offerings for three years and required to notify any entities or individuals he promotes in the future that they need to comply with federal securities laws.
In 2018, Floyd Mayweather Jr. and musician DJ Khaled were the first to face enforcement actions for touting an ICO. The two celebrities did not admit wrongdoing but agreed to pay fines of $614,775 each in a settlement with the SEC.
In their complaint, the SEC alleged that Mayweather and Khaled failed to disclose payments they received from Centra Tech, Inc., which promoted its ICO through their Twitter, Instagram, YouTube, and Facebook social media accounts. The SEC also alleged that both individuals acted as “unregistered securities brokers” violating federal securities laws when they recommended investors buy or invest in Centra Tech’s tokens without disclosing that the company had compensated them.
SEC Will Continue to Crack Down on Crypto Influencers
Without a final judicial decision, the SEC’s current stance is that crypto tokens sold as an investment contract are securities as defined by the U.S. Supreme Court’s decision in SEC v. W.J. Howrey Co. and are subject to securities regulations.
The SEC will continue to pursue enforcement actions against cryptocurrency influencers who fail to disclose their financial ties to the tokens or other crypto assets they promote. SEC Chair Gary Gensler, commenting on the recent Paul Pierce case, reaffirmed the SEC’s commitment to holding celebrities accountable for failing to comply with securities regulations, saying, “When celebrities endorse investment opportunities, including crypto-asset securities, investors should be careful to research if the investments are right for them, and they should know why celebrities are making those endorsements.”
