Kim Kardashian, eager to be known as a serious businesswoman, should have known better. In 2021, the US TV personality turned lifestyle brand, promoted a cryptocurrency, EthereumMax, on her Instagram page.
Kardashian did not inform her followers — more than 200mn of them at the time — that she received $250,000 for the post. On Monday, the influencer paid $1.26mn to settle charges that she violated rules by not disclosing the payment she received from EthereumMax.
Given that she was touting an obscure token, a typical Instagram follower probably could have deduced that she was getting something in exchange for the post. Simply adding some fine print would have spared her the ignominy of a Securities and Exchange Commission action just weeks after launching her private equity firm. As a part of the deal with the regulator, Kardashian did not admit nor deny wrongdoing.
The SEC has been aggressively increasing its oversight of the cryptocurrency markets. This is part of defending its role as the right cop on the beat in financial services.
The SEC’s sway over cryptos is not a settled question. Washington has been puzzling over which agency should have purview. This is a critical question as cryptocurrency prices have largely collapsed since Kardashian’s post.
Based on a Supreme Court ruling from 1946, the SEC applies the so-called Howey test to determine whether an asset qualifies as an investment contract or security and thus is subject to federal securities law. The test is whether an asset involves an investment of money in a common enterprise, with the expectation of profit to be derived from the efforts of others.
In its order, the SEC argues the marketing materials and public statements made by EthereumMax clearly demonstrate evidence that the Howey test were met.
Some cryptocurrency sponsors, notably Ripple Labs, are challenging the SEC’s authority. Some in Congress would prefer the Commodity Futures Trading Commission to take the lead. But the success of the SEC in winning big settlements from the likes of Kardashian is improving its chances of establishing supremacy.