There have been SEC charges against Kardashian. From the outset, the world of cryptocurrencies was and continues to be touted as a libertarian utopia free from government interference and regulation, a refuge from inflation due to its finite supply and transparent blockchain technology.

But now that world has been rocked and darkened by scandal after scandal, the latest being the revelation that the U.S. Securities and Exchange Commission fined celebrity influencer Kim Kardashian more than $1.25 million for her undisclosed paid social media promotion of a “crypto asset security.” 

According to the SEC, Kardashian was paid $250,000 to post on Instagram about a token called EMAX. The post directed her millions of followers to a link, which failed to mention that it was a paid promotion. 

Influencers endorse investment opportunities

“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 Chair Gary Gensler stated in a release announcing the charges.  

Gensler was right to warn investors about the risks of taking financial advice from Instagram celebrities. But he also missed a critical opportunity to remind so-called “influencers” that they can be held accountable for touting investment products without being transparent about being paid.

For Kardashian, the fine is a pittance of her vast fortune. Still, for smaller and less wealthy influencers, the SEC’s action should serve as a wake-up call to think twice about promoting cryptocurrencies without informing followers that they’ve been paid to endorse them. 

American federal securities laws

It was back in 2017 that the commission first warned the investing public about celebrity endorsements of investment products including cryptocurrencies, but five years later that message has seemingly fallen on deaf ears.

“Celebrities who endorse an investment often do not have sufficient expertise to ensure that the investment is appropriate and in compliance with federal securities laws,” the commission stated at the time.

Not only do influencers risk violating commission rules around paid stock promotions, but also violate anti-fraud provisions of American federal securities laws. 

The commission and other regulators seemingly fail to recognize the inherent flippancy of influencer culture, making it a space ripe for fraudsters and fakery to take advantage of the digital gold-rush get-rich-quick mentality that cryptocurrencies have created in the minds of many, especially inexperienced investors. 

SEC charges against Kardashian

The rise of Bitcoin and other cryptocurrencies has drawn many parallels with the gold rush of the 19^th century. Those who got in early, of course, reaped huge rewards.

Those who got in late in the game have seen their crypto holdings decimated by crashing values and high-profile collapses of several exchanges that were later exposed to be nothing more than high-tech Ponzi schemes. 

Comparisons between historical capital markets frauds and social media-based crypto frauds offer many lessons for both investors and influencers today. Take, for instance, classic pump-and-dump schemes involving paid promotions of dubious stocks by the newsletter writers of yesteryear.

They bear the same hallmarks of the scams we’re seeing today on social media platforms, with one key difference: social media influencers are roped into these schemes unwittingly through large paydays, posting whatever hashtags, links, and buzzwords they’re told to include. 

Implicated in financial frauds

Contrast this with the dodgy world of stock promoters, who have repeatedly been accused of fraud for knowingly exploiting investors with undisclosed, paid promotional work for worthless stocks.

But paid professional stock promoters and social media influencers like Kardashian share a commonality: they’re enlisted to cash in on investors’ “fear of missing out” mentality, which the SEC has also warned against with a somewhat cringeworthy slogan, “NO GO to FOMO.” 

“You may see your favourite athlete, entertainer or social media influencer promoting these kinds of investment opportunities,” wrote Lori Schock, the Director of the SEC’s Office of Investor Education and Advocacy. “Although it’s tempting, never invest based solely on their recommendation.”

SEC charges against Kardashian

In the years since the explosion of cryptocurrencies and the scams they’ve spawned, the SEC and other financial regulators worldwide have thankfully begun to recognize the pernicious role that influencers can play in financial fraud.

Consumer protection and financial regulators in the U.S., India, the U.K., and Poland have fined (or called for fines against) influencers for undisclosed economic ties to the products they tout to their followers. 

With that in mind, it’s no surprise that the SEC is being applauded for making an example of someone as well-known as Kim Kardashian.

As the Commission has warned, influencers touting investment products as volatile as cryptocurrencies are likely ignorant to the risks they pose to the investing public, and that ignorance is unfortunately as blissful as it is profitable for them, but hopefully not for much longer.   

The SEC charges against Kardashian should be a wake-up call to everyone who calls themselves an influencer.

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