Kim Kardashian agreed to pay a massive fine on Monday for failing to disclose that she was paid to promote the EthereumMax cryptocurrency. Kardashian agreed to pay the Securities and Exchange Commission (SEC) $1.26 million in penalties to settle charges that she illegally promoted crypto tokens on her Instagram account, inviting her 328 million followers to invest.

"This is not financial advice," Kardashian wrote on Instagram in June 2021. "However, I'd like to share what my friends just told me about the EthereumMax token!"

Among the hashtags used was "#ad," but the post also included a link to EthereumMax's website, which detailed how to purchase the digital tokens.

Kardashian faces a massive fine

On Monday, the SEC announced the charges against the social media sensation. According to the SEC's order, Kardashian failed to disclose that she was paid $250,000 to publish a post about EMAX tokens on her Instagram account. She agreed to settle the charges, pay $1.26 million in penalties, disgorgement, and interest, and cooperate with the ongoing investigation of the Commission.

"This case serves as a reminder that just because celebrities or influencers endorse investment opportunities, including crypto asset securities, that doesn't mean those investment products are right for all investors," SEC Chair Gary Gensler said. "We encourage investors to consider the potential risks and opportunities of an investment in light of their own financial goals."

Furthermore, Gensler stated that the case should serve as a reminder to celebrities and others that the law requires them to disclose when and how much they are paid to promote investing in securities to the public.

Some experts believe Kardashian may have tried to argue that the "#ad" was sufficient to satisfy the SEC's rules, but the SEC noted in its filing against the influencer that the Securities Act explicitly requires the disclosure of the amount received for the publicity of a security.

Kardashian made no mention of being paid $250,000 to promote the EMAX tokens in her post.

"Kim Kardashian isn't the only celebrity to get into cryptocurrency trouble," explained Pund-IT technology analyst Charles King via email.

"In 2018, boxer Floyd Mayweather and music producer DJ Khaled paid $600,000 and $150,000 in SEC fines for failing to disclose fees they were paid for endorsing Centra Tech, respectively," King continued.

Social Media Investment Tips

The SEC actually encourages investors to conduct their own research and discourages anyone from relying on paid celebrity endorsements. Nonetheless, many young investors today continue to look to social media, particularly influencers on the platforms, for sound financial advice. According to a 2021 CreditCards.com survey, approximately 52% of millennials and Generation Z received financial advice from social media platforms such as Facebook and Instagram, and found the advice to be trustworthy.

The SEC may target other influencers and celebrities who have failed to disclose that they were paid to promote cryptocurrency, and Kardashian may be the first, but not the last, to face SEC scrutiny and fines.

"Given her high public profile, Kim Kardashian's $1.26M fine could be evidence that the SEC is also targeting crypto-promoting celebrities like Tom Brady and Matt Damon," he added. "While the SEC fine is unlikely to have a significant financial impact on Kardashian, investors are reportedly suing her and Mayweather for failing to disclose the payments they received from EthereumMax."

Since Kardashian's promotion, the EMAX cryptocurrency has lost 95% of its value. As a result, even if many of the celebrities who promoted crypto on social media do not face SEC scrutiny, it is likely that few will continue to promote digital currencies in the future.

"Those are risks that sensible people, including celebrities, would prefer to avoid," King said, adding, "especially given Kardashian's relatively paltry $250k for her endorsement."