SEC fined reality TV star who received $250 000 from cryptocurrency developers

What is EthereumMax? Why Kim Kardashian was fined a million dollars because of the token

04.10.2022

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5 min

American businesswoman and reality TV star Kim Kardashian was fined $1.26 million for failing to disclose how much she was paid for an Instagram post promoting the cryptocurrency EthereumMax. Kardashian is just one of several celebrities who promoted crypto projects during the pandemic, and far from the first to face the top US financial regulator.

On October 4, the US Securities and Exchange Commission (SEC) announced that it had reached a settlement with Kardashian over an Instagram post she made last year that promoted the EthereumMax token project. According to the SEC, Kardashian failed to disclose that she received $250 000 for the advertising post, thereby violating the commission's rules. She also agreed not to advertise crypto projects for another three years, to pay a $1 million fine for the post, to refund the $250 000 she received and about another $10 000 in additional fees.

That very post on Kardashian's account began with the words “this is not financial advice” and Kardashian mentioned EthereumMax, writing that “friends just told her about the token.”

Screenshot of EthereumMax promotional publication.

Source - SEC filings

According to the description in the SEC filing, the post was accompanied by a video of Kardashian saying she had “big announcement” and a link to the EthereumMax website to buy tokens. The post ended with the hashtag #AD, but that wasn't enough for the SEC. The Commission requires that any celebrity or other individual “who promotes a virtual token or coin that is a security” must disclose the nature, scope and amount of the compensation received for the promotion.

What is EthereumMax

EthereumMax (EMAX) is an Ethereum and Arbitrum blockchain-based token launched by anonymous developers last year. The project's white paper contains bold statements about creating a “robust and scalable ecosystem that fully maximizes the power of DeFi,” and the cryptocurrency's slogan is “disrupt history.” At the same time, the project's social networks announce only uncomplicated casino-like games and token burning bias.

EthereumMax (EMAX) price chart

Source: Coinmarketcap.com

In May 2021, amid an advertising campaign and social media influencers, the token price reached an all-time high (ATH) of $0.00000092, but quickly collapsed by 99% and never recovered. Two quadrillion tokens were issued when EMAX was created and about 6% of the supply was taken out of circulation due to their partial burning. It was one of the stages of token burning that was also mentioned in Kardashian's post.

At the time of publication, EMAX has a market capitalization of $11.8 million, according to CoinMarketCap. The coin's daily trading volume surged several times after the media broke the news about the SEC announcement. The token trades only on decentralized exchanges (DEX) and single second-tier trading venues, far from the leaders in terms of trading volume.

In January, a group of investors who bought EMAX tokens after celebrity publications sued Kardashian and boxer Floyd Mayweather, who also promoted the token. EMAX tokens were used to pay for a ticket for Mayweather's fight against blogger Logan Paul, who also advertised EthereumMax in his YouTube videos. At that time, the boxer, wearing a T-shirt with “EMAX” printed on it, appeared on stage at the Bitcoin 2021 cryptocurrency conference in Miami, but was booed by the audience before he could finish his speech.

The SEC statement also mentions former Boston Celtics American football team player Paul Pierce. On his Twitter account, Pierce repeatedly made promotional posts about EthereumMax. “I got EthereumMax. I made more money with this crypto in the past month than I did in a year,” Pierce wrote in a post in May 2021, when the price of the token briefly soared several times and reached ATH following the publication of influencers.

Who else is fined by the SEC

During the COVID-19 pandemic, many celebrities advertised questionable crypto projects on their media channels. Anonymous developers directly or through marketers ordered advertisements from Kardashian, actor Matt Damon, American football star Tom Brady and other top stars. Some of them have also been fined by the SEC or are likely to be fined in the future. Just this year, the SEC fined Mayweather, producer DJ Khaled and crypto blogger Ian Balina for advertising ICO projects four years ago.

The EthereumMax ad campaign involved dozens of anonymous micro influencers in addition to celebrities, which regulators are unlikely to get their hands on. In April of this year, a group of investors who consider themselves victims of a pump-and-dump scheme filed a class action lawsuit against Uniswap Labs, the company behind the development of the Uniswap decentralized exchange, after which the SEC requested transaction data from Uniswap Labs. The lawsuit mentions several tokens that could be bought on the exchange, and the list also includes EMAX.

On the day the Commission's statement was published, SEC Chairman Gary Gensler posted a warning video on Twitter for social media users, which explains in an accessible way why you should be on guard when making investment decisions based on what influencers are advertising.

“Celebrity endorsements don't mean that an investment product is right for you, or even, frankly, that it's legitimate,” Gensler explains in the video. The SEC head particularly emphasized that the recommendations are specifically about cryptocurrencies, calling them “highly speculative assets,” which resonates quite well with the Commission's digital asset policy. Meanwhile, the heads of other regulators in the US criticize over-regulation, and large crypto projects like Ripple Labs can afford to sue the commission with chances of success.

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